Personal Statement: Lord Inge

Lord Inge: My Lords, I should like to make a personal statement. Before the defence debate last Friday, I am afraid that I forgot to declare an interest. I am the non-executive chairman of a private security company.

Road Safety: Electric and Hybrid Vehicles
	 — 
	Question

Lord Low of Dalston: To ask Her Majesty's Government what assessment they have made of the danger posed to pedestrians and cyclists by the near-silent operation of electric and hybrid vehicles.

Lord Adonis: My Lords, my department has discussed with Guide Dogs for the Blind and Imperial College whether electric and hybrid vehicles pose a danger to visually impaired people. The Government will, early next year, start a research project to determine the extent of any problem. We will keep the RNIB and Guide Dogs for the Blind informed of the progress of this research and I will consult with them when the research is complete.

Lord Low of Dalston: I thank the noble Lord for that reply. Is he aware of the research from the University of California indicating that hybrid cars need to be anywhere between 40 per cent and 75 per cent closer than combustion engine cars before subjects can tell that they are approaching, leaving only one second to detect their approach when travelling at low speeds. What chance does that give small children and others to stop, look and listen before crossing the road? What is the timescale for the research that the Minister mentioned? Given that the Committee on Climate Change has said that it expects there to be 1.7 million electric and hybrid vehicles on British roads by 2020, does he agree that that research needs to be pursued as a matter of urgency?

Lord Adonis: My Lords, we anticipate that the research will take about nine months. In respect of the growth in the number of electric and hybrid cars in this country, by 2015 we expect that only 3 per cent of new cars will be electric or plug-in hybrid cars, which will represent 0.4 per cent of the total UK fleet. Although I accept the points made by the noble Lord about needing to be fully aware of the impact of electric or hybrid cars on those to whom they may possibly cause danger, I believe that we have time to take appropriate measures.

Lord Berkeley: My Lords, does my noble friend agree that an additional point for the research that he just mentioned should be to see whether the existing motor fleet could be made quieter so that ambient noise is reduced? Then we would be able to hear these electric cars more easily. Is that not the best solution?

Lord Adonis: My Lords, I believe that cars are becoming quieter over time, so my noble friend's point is being met. However, he is right to point out that, according to research, more than 90 per cent of the UK population hear traffic noise while at home and about 10 per cent regard their exposure to that source of noise to be highly annoying. There is clearly more progress to be made.

Lord Ashley of Stoke: Does my noble friend agree that this is a no-win situation, whichever way the Government turn? We cannot advocate noisy vehicles because of the environment and yet blind people and deaf people really are vulnerable to silent vehicles. The only realistic solution is to raise the awareness of the public and drivers.

Lord Adonis: My Lords, as a Minister now for four and a half years, I am used to being in no-win situations. My perpetual quest is for the happy medium.

Lord Palmer: My Lords, I must declare an interest as the owner of an electric vehicle, which is completely and utterly silent. Surely nine months is an awfully long time to have to wait. There must be a simpler method, particularly with modern communications, to produce a report even before Christmas.

Lord Adonis: My Lords, I look forward to the noble Lord's advice as to how we might accomplish that.

Lord Jenkin of Roding: My Lords, I declare an interest as a former member of the council of Guide Dogs for the Blind. I think that the Question could go a little wider. Cyclists are completely inaudible and frequently ride on pavements. Whether one is visually handicapped or not, they constitute a real peril to pedestrians. I think, if I may say so, that something ought to be done.

Lord Adonis: My Lords, cyclists should obey the law, like everyone else.

Lord McColl of Dulwich: My Lords, does the Minister accept that there might be a simpler solution? When I purchased one of these cars a few years ago, my wife, being very practical, said that the answer would be to put on the front of the car a small Swiss cowbell.

Lord Adonis: My Lords, I think this is England. Whether such Swiss innovations would go down well here is a matter for conjecture. We have nine months for a wide-scale public debate. I shall ensure that the noble Lord's suggestion features prominently in that debate.

Lord Howarth of Newport: My Lords, what discussions is my noble friend having with colleagues—including, if I may term him a colleague, the Mayor of London—as to how to improve the likelihood that cyclists will indeed obey the law?

Lord Adonis: My Lords, as I said earlier, cyclists have a responsibility to obey the law and we take that very seriously. They are expected to have regard to the Highway Code, which stipulates proper behaviour on the road. As a society we need, over time, to improve the facilities that are available for cyclists, too. I do not think that cyclists get the quality of infrastructure which ensures that they are able to cycle entirely safely on the road. Here again, what we need is a happy medium.

Earl Attlee: My Lords, pedestrian accidents are more prevalent in disadvantaged areas. How will the Minister prevent these new vehicles exacerbating this problem?

Lord Adonis: My Lords, we are addressing the issue of the impact of electric and hybrid vehicles on all areas. We are not discriminating between different types of area.

Lord Grenfell: My Lords, the noble Lord, Lord McColl, has suggested that a cowbell may be the answer. Does the Minister agree that, from the position from which I am speaking, maybe a man with a red flag walking in front of the car would be better?

Lord Adonis: Your Lordships are full of such useful suggestions this afternoon. I believe it was Herbert Morrison who lifted the speed limit above 20 miles per hour, which it was until the 1920s in this country. That is where it had got to after people had ceased to be required to carry red flags before cars. I do not believe, though, that the future always lies in reinventing the past.

Lord Stoddart of Swindon: My Lords, is the noble Lord aware that the penalty for riding on the pavement is only £30? Would it not be helpful if that penalty were quadrupled to £120, which is the fine imposed under the London congestion charge if you do not pay the penalty within two days?

Lord Adonis: My Lords, I expect to see the law properly enforced, but the penalties which are in place at the moment are those that we expect to be observed.

BBC: Funding
	 — 
	Question

Baroness Bonham-Carter of Yarnbury: To ask Her Majesty's Government what plans they have for the future funding of the BBC.

Lord Davies of Oldham: My Lords, under the terms of the BBC's royal charter, the BBC will continue to be funded by the licence fee until the end of 2016. The Government are committed to reviewing the scope for funding mechanisms for post-2016 funding. In January 2007, the Government announced a six-year funding settlement, which began in April 2007.

Baroness Bonham-Carter of Yarnbury: I thank the noble Lord for his reply and declare an interest as an associate of an independent production company. We on these Benches support the licence fee and the BBC that it funds—an institution which is envied around the world except, perhaps, in the offices of News International. But does the noble Lord not agree that the BBC needs competition? If so, what is his response to the BBC Trust's suggestion that when spectrum charging is introduced, the money accrued from the BBC should not go to the Treasury but be ring-fenced to fund public service broadcasting on channels other than the BBC?

Lord Davies of Oldham: My Lords, that is a perspective of some distance in the future. As I indicated, the settlement which has been reached on the licence fee and the use of the licence fee moneys in broad terms has been established until 2016. However, as I indicated in my original Answer, it will be necessary to look at the whole issue of funding mechanisms after that time. The noble Baroness has identified one area to which consideration could be given.

Lord Grocott: I am sure my noble friend agrees that public service broadcasting is one of the institutions and services in this country that we should cherish despite all the difficulties that can arise from time to time. However, does he also agree that if public service broadcasting were seen as being provided exclusively by the BBC, that would inevitably lead to its slow death? It is essential to ensure that the public service remit of other channels is not just protected but properly funded.

Lord Davies of Oldham: My Lords, I agree with my noble friend, and I indicated the Government's openness on the issue with regard to the future. Certainly the concern about the continuance of high-level regional and local news on independent channels, which may need provision against the criteria of public service broadcasting, might lead to resources being made available for that particular dimension of independent broadcasting. As I indicated, these matters are somewhat beyond the present settlement.

Lord Maxton: My Lords, if the public are to be made more aware of the reasons for the cost of the licence, is it not time that the BBC was made much more accountable for its expenditure? Will the Government therefore consider including the BBC within the remit of the Freedom of Information Act so that we can know at all times how that money is spent?

Lord Davies of Oldham: My Lords, the BBC Trust is responsible for making the decisions of the BBC, and the strategies that it follows, open and accountable. My noble friend is right to identify that anxieties about the BBC's expenditure are expressed from time to time. However, I am not at all sure that that debate is necessarily occluded through a lack of information. It seems to me that when people want to make points about the BBC, they succeed in getting access to the relevant information.

Lord Dykes: My Lords, does the Minister feel that the BBC's news programmes, which use taxpayers' money, have increasingly been used recently just to give newspaper headlines?

Lord Davies of Oldham: My Lords, it is important that progress is made on the issues of accountability. We are all too well aware of the fact that at present, when so many other institutions and activities in the country are under great constraint, the BBC enjoys a particular position with regard to the settlement on the licence fee. That is why the obligations on the BBC to respond constructively and openly are all the greater.

Lord Lawson of Blaby: My Lords, would the Minister care to consider that one of the principal planks of the public service ethos is that there should be healthy debate on all sides of all major issues? When the views of all the major parties happen to be on one side of an issue, does not the BBC have an even greater responsibility to make sure that the other side has a good hearing?

Lord Davies of Oldham: My Lords, if the noble Lord is suggesting that the Flat Earth Society should have equal time with proponents of established scientific proof, I would have to disagree with him. He may be thinking about another scientific parallel that is not too far away.

Baroness McIntosh of Hudnall: My Lords, following on the question of my noble friend Lord Grocott about the extent of necessary competition and diversity in public service broadcasting, is it not important for the BBC to pursue the possibility of sharing its facilities and creating partnerships with other organisations to spread the benefit of the licence fee? Is that not a more creative way forward than reducing the licence fee or cutting aspects of the BBC's remit?

Lord Davies of Oldham: My Lords, I agree with my noble friend. Given that the BBC has increased its use of independent production companies, it makes sense for it to cherish those who supply its programmes—and that means at times being prepared to consider partnerships and to be open about the possibilities of extending broadcasting opportunities through the judicious use of public money.

Baroness Finlay of Llandaff: Have the Government ever recommended to the BBC that it should consider using a salary review body similar to the ones for doctors, dentists and other public service professionals?

Lord Davies of Oldham: That is a challenging concept, my Lords. The noble Baroness will be only too well aware that broadcasting is of a different genre from the professions that she has identified. I should imagine that anyone who reviews salaries would regard the task of reviewing those professions, difficult as that might be, as relatively straightforward compared with the issues of reviewing broadcasting.

Abu Dhabi
	 — 
	Question

Lord Soley: To ask Her Majesty's Government whether they have had discussions with the Government of Abu Dhabi about their commitment to the rule of law.

Baroness Kinnock of Holyhead: My Lords, we frequently discuss issues related to the rule of law with the Abu Dhabi Government. The counsellor for law enforcement co-operation in the British Embassy in Abu Dhabi and more than 60 UK police officers work with the Abu Dhabi police to provide practical assistance and support. It is significant that the Abu Dhabi Government have, this, week asked the UK to partner a project to modernise their judiciary. That demonstrates a commitment to develop this vital area.

Lord Soley: I am encouraged by that reply. Does my noble friend share my view that no state can succeed in the modern world without the rule of law? She will be aware of the dreadful case of Sheikh Issa and the torture of one of his employees, and she will be aware of a number of businesspeople whose assets have been seized. I am most familiar with the al-Ghussein case. Is it possible for us to assist countries such as Abu Dhabi, perhaps by setting up a school of law or even an independent commission against corruption, which, frankly, many of these problems stem from?

Baroness Kinnock of Holyhead: My Lords, I thank my noble friend. Judicial reform and modernisation, which I mentioned in my Answer, is a serious gesture in addressing some of the concerns that he has rightly expressed. This involves partnering the 40 leading judges and counterparts from five other states, including the United States, who are involved in the programme which we will be working on. We welcome that development, which demonstrates an interest in moving things forward. My noble friend raises a very good point: the concept of a United Arab Emirates regional rule-of-law school is an innovative concept, which we should suggest to our UAE counterparts at an official level. I shall do that. I also intend to ask the Foreign Secretary to discuss this matter further with Crown Prince Mohammed bin Zayed when he sees him at the end of the year.

Baroness Rawlings: My Lords, following the noble Baroness's first Answer, will she tell the House whether any ministerial trips to the area are planned?

Baroness Kinnock of Holyhead: My Lords, I am afraid that I have no knowledge of any ministerial trips, although, as I said in my previous answer, the Foreign Secretary will meet the Crown Prince in December. That is as far as I can go on that, but I will write to the noble Baroness and say what the case is.

Lord Wallace of Saltaire: My Lords, perhaps I may put this in a multilateral framework. An adequate rule of law is essential in a global business world for businessmen moving from country to country. Are we working through the OECD, the WTO and others to make sure that the rule of law is strengthened in all member states of those organisations? Recent cases in Russia and China, for example, have been extremely worrying in terms of foreign investment and the treatment of businessmen as they travel around.

Baroness Kinnock of Holyhead: I can inform the noble Lord that a corruption conference was held in Qatar on Saturday. My honourable friend was there and I am sure can report back on what took place. The noble Lord is right that such collaboration should and does take place between the OECD, the WTO and other players to ensure that business activities can take place in such a way that issues of concern can be dealt with. One such issue in relation to the Emirates is financial crime, as the Emirates are a hub for finance, banking, shipping and trade, which are subject to substantial and serious problems of transactions, money-laundering and so on.

Lord Woolf: Does the Minister agree that it is most important that there should be visits of the sort to which she just referred by government Ministers to the Middle East and other parts? Does she also agree that this country should take a lead by showing in its own practices that it is always observant of the rule of law?

Baroness Kinnock of Holyhead: The noble and learned Lord makes an important point, which illustrates the importance that we attach to providing as much support as we can for the capacity building that the United Arab Emirates needs to improve the rule of law. Noble Lords will be aware that there are concerns, such as the one that my noble friend raised on the torture tape, but it is important for us to understand that there is progress. We are doing everything that we can to improve the record and I think that the Emirates, too, intend to make every effort to do so.

Banking
	 — 
	Question

Lord Willoughby de Broke: To ask Her Majesty's Government what assessment they have made of the legality of the European Commission's decisions on the future of banks in the United Kingdom owned or partly owned by the Government, in the context of the expiry of the present Commission's term of office on 31 October.

Lord Davies of Oldham: My Lords, the Commission may act in a caretaker capacity after the expiry of its mandate on 31 October to protect the interests of the EU, to fulfill its obligations under the treaty and to ensure the continuity of public service. The Government have agreed packages of measures in principle with Commissioner Kroes in respect of the restructuring of Lloyds Banking Group and the Royal Bank of Scotland. These are now subject to state aid approval by the college of Commissioners.

Lord Willoughby de Broke: My Lords, while I am grateful to the Minister for that reply, I am afraid that I am not satisfied by it. Nowhere does the treaty, under any article for the reappointment of the Commission, allow for reappointment in a caretaker capacity; there is simply no legal basis in the treaty for that. It therefore follows that, in all its actions since 31 October, the Commission has been acting beyond its powers. That includes the restrictions that have been put on the Royal Bank of Scotland in relation to the payment of dividends, for example, which disadvantages shareholders and pension funds. Can the noble Lord confirm that the Commission has not been legally reappointed according to the procedures laid down in the treaties and that, therefore, its actions are ultra vires?

Lord Davies of Oldham: My Lords, the Commission has not been legally reappointed because there is no need for it to be. What is happening at present, as has happened on two occasions in the past, is that a caretaker Commission has continued beyond the expiry date of the mandate. Its decisions have been ratified by case law and decided to be entirely valid in circumstances in which, as the House will appreciate, a vacuum could not be allowed to occur because of delays with the treaty that would lead to a situation in which no decisions at all could be taken by the Commission.

Lord Kinnock: My Lords, is my noble friend aware that, under Article 216 of the treaty, provision is made to ensure that a Commissioner—and therefore a Commission—stays in office unless and until a replacement is appointed through due process, and that consequently the decisions taken by the Commission since 31 October are completely within the law? Is he further aware that the competition rules operated by the Commission have existed unchanged since 1958, and that the banking restructuring required under the state aid rules set down since then is completely consistent with the law and has been supported by every UK Government since we have been in the European Community and European Union?

Lord Davies of Oldham: My Lords, I have been grateful to my noble friend in the past, but perhaps never so much as on this occasion, when he speaks with all the authority of having occupied the Commissioner role.

Lord Pearson of Rannoch: My Lords, do Her Majesty's Government agree that the EU's emerging common financial policy—illegal though it may be, as your Lordships' Select Committee has found—will prove a worthy companion to those planetary disasters, the common agricultural policy and the common fisheries policy?

Lord Davies of Oldham: My Lords, I am grateful to the noble Lord for broadening the discussion. It gives me the chance to emphasise that not only British banks, but two German banks and a Dutch bank, are subject to the requirements. The background to this is phase 1, in which the Commission acts and there is a right of appeal against any position that it takes. So far, no one has appealed against the decisions of Commissioner Kroes, largely because they make a great deal of sense.

Lord Foulkes of Cumnock: My Lords, will the Minister confirm that, irrespective of what decisions are made about the future of the banks, the three separate Scottish banknotes will continue to be issued and the holders of such banknotes will be protected against any potential future insolvency?

Lord Davies of Oldham: My Lords, I am delighted that my noble friend was able to attend the Committee yesterday when we discussed these issues, and I am pleased that I am able to confirm today what I was able to confirm yesterday.

Lord Newby: My Lords, does the Minister accept that the real question concerning the banks is how best to restructure them in order to prevent them taking undue risks in the future? Would he accept that simply flogging off a few hundred branches does not get to the root of the problem, and that what the UK Government should be doing is discussing with the banks how to split their utility functions from their casino functions on a permanent basis?

Lord Davies of Oldham: My Lords, the noble Lord has strayed from the Question, which concerns the decisions taken by the Commissioner being implemented by the Government for the necessary increase in competition in the British financial sector. He is going on to the broader role of banking, and will know that the Government are addressing themselves to that with all the urgency required.

Lord Pearson of Rannoch: My Lords—

Lord Hannay of Chiswick: My Lords, does the Minister agree that it is a trifle odd that two noble Lords opposite are seeking to undermine the powers of the Commission as regards competition policy when what this country requires is for the Commission to operate those rules in a rigorous and even-handed way, which it has been doing, because that is what is in our national interest?

Lord Davies of Oldham: My Lords, I would never suggest that expressions that emerge from noble Lords opposite are odd but they certainly do not fit in with received public opinion in this country. People know only too well that the Commission's role with regard to competition policy has been hugely backed by public opinion and by Governments of all persuasions in this country because it is very much in our interests. To that extent, therefore, I am extremely grateful to the noble Lord for identifying those issues.

Lord Tomlinson: My Lords, rather than inflict on the House a second question from the noble Lord, Lord Pearson, I invite my noble friend to hypothesise on what the damage to European economies would have been if co-ordinated action had not been taken at the European level. Does he agree that today throughout Europe we are seeing the benefit of that co-ordination in the fact that economies are coming out of the recession and growth is showing quite strongly, so that even papers such as the Daily Telegraph yesterday are full of praise for the prospects of this country?

Lord Davies of Oldham: My Lords, my noble friend, in his usual trenchant terms, has identified the strange feature of arguments opposite that somehow in this global crisis, with Britain so exposed because of the significance of our financial sector, we could have pursued a policy of go-it-alone.

Lord Willoughby de Broke: My Lords—

Noble Lords: Order.

Lord Willoughby de Broke: There is time. As the noble Lord, Lord Hannay, said, the question is not whether the Commission has done a good or a bad job; it is whether it is legal. I do not accept the point made by the noble Lord, Lord Kinnock. I should like him to quote Article 216 to see whether the Commission is legal. I do not believe that it is; it may have to be tested in the courts.

Lord Davies of Oldham: My Lords, it is always open for that to happen in a democratic structure, to which I know that the noble Lord subscribes so far as the European Union is concerned. I emphasise that on two previous occasions Commissions have had to extend their periods of office for a short time. Test cases indicate their right and duty to do so, and the same applies here.

Lord Woolf: My Lords, it has been drawn to my attention that there may be two matters for which I should apologise to the House in respect of a question that I asked spontaneously a short time ago. The Cross-Benchers, of whom I am one, are always grateful for the hospitality that is received in the position that I now occupy. The question certainly did not indicate that I intended any allegiance to Her Majesty's Opposition, but apparently the hospitality extends only to sitting on this side of the House and not to asking questions from it. If that be so, I apologise and shall try to forbear doing so again.
	Regarding the second matter that was drawn to my attention, I am grateful to the Leader of the House, who indicated that perhaps I should have referred to the fact that I am engaged for profit in seeking to establish a court in another Gulf state, Qatar. My question was directed at what the Government should be doing and had nothing to do with Qatar. However, in so far as I should have mentioned that matter, I do so now and apologise.

Two-minute Silence
	 — 
	Announcement

Baroness Royall of Blaisdon: My Lords, the whole House will be aware that tomorrow is Armistice Day. At 11 o'clock tomorrow morning the House will not be sitting. Members of the House, their staff and the staff of the House will nevertheless be going about their work outside the Chamber. I hope that the House will agree that it is appropriate that we observe the two-minute silence at that time so that we might remember those who have made the ultimate sacrifice of giving their lives for this country. If the House is content, instructions will be issued to heads of department so that members of staff who wish to observe the two-minute silence will be enabled to do so.

Provision of Services Regulations 2009

Copy of the SI
	Grand Committee Debate

Motion to Approve

Moved By Lord Young of Norwood Green
	That the draft regulations laid before the House on 12 October be approved.
	Relevant document: 22nd Report from the Joint Committee on Statutory Instruments.Considered in Grand Committee on 29 October.

Lord Lucas: My Lords, I am extremely grateful for the help that I have received on the regulations from the noble Lord—and, most particularly, from his officials—on behalf of the pedlars, who are affected by one clause in it. His officials have been exceptionally gracious and helpful, and I hope that we have approached a resolution. However, I encourage the noble Lord to take a Buddhist attitude to regulation: that when we are marching forward on the great road to progress, we pay some attention to the beetles beneath our feet.
	Motion agreed.

House Committee: Parliamentary Passes
	 — 
	Motion to Agree

Moved By The Chairman of Committees
	That the report from the Select Committee on Parliamentary Passes for UK Members of the European Parliament (4th Report, HL Paper 170) be agreed to.

Lord Brabazon of Tara: My Lords, I beg to move that the fourth report from the House Committee be agreed to. This report has been put before your Lordships because of the decision taken by the House of Commons in October to stop granting parliamentary security passes to UK Members of the European Parliament. However, because both Houses have the power to issue security passes, the decision to deny MEPs passes granting access to the parliamentary estate can take effect only if this House also stops granting passes. This in turn can happen only if your Lordships agree to overturn the resolutions referred to in the second paragraph of the report. It is for the House to decide whether our previous resolution should be rescinded, and this report is a mechanism to allow the House to take that decision.
	I have noted the amendment tabled by the noble Lord, Lord Tomlinson. If the amendment is accepted, the House Committee will of course reconsider the matter. Any subsequent decision that this House should continue granting passes to UK MEPs would present obvious practical difficulties, but officials of both Houses, would doubtless strive to identify a mutually acceptable way forward.
	Finally, I should highlight one error in the report. UK MEPs are not in fact entitled to access to the Peers' Guest Room. Although they were granted that privilege for the 1992-97 Parliament, it was not renewed thereafter and has consequently expired. I look forward to hearing the views of the noble Lords and I beg to move.
	Amendment to the Motion
	 Moved by Lord Tomlinson
	As an amendment to the above Motion, to leave out "agreed to" and insert "referred back to the Committee for further consideration".

Lord Tomlinson: My Lords, I am very grateful to the noble Lord, Lord Brabazon, for the way in which he has moved the Motion. The House Committee performs invaluable service to your Lordships' House, and I am usually loath to disagree with it, but on this occasion, I believe that it has got it wrong, although it may have made its decision with the best of motives. Paragraph 4 in the committee's report is the only justification issued for withdrawing MEPs' passes. It states:
	"The decision of the House of Commons in practice cannot take effect without the assent of this House".
	That is surely the case for almost every decision that the House of Commons makes. We challenge its right to make unilateral decisions in all sorts of important legislative proposals. We say to the House of Commons, "Think again. Have another look", because we think that it is not necessarily following the best course. If we can do that on anti-terrorist legislation, the abolition of certain trials without jury, identity cards or length of detention without trial, surely we are entitled to say to the other place, "Look at this rather messy, shoddy administrative proposal to deny passes to Members of the European Parliament, who have enjoyed them for past 29 years"—without, as far as I am aware, having produced any problems.
	Of all the issues on which we can say, "Think again", this is one of the least significant but symbolically most important. As I said, our system has worked for nearly 30 years without problem. It is important, because one or two noble Lords suggested to me that there is no reciprocity, to know the terms of the letter written by the three party leaders in the European Parliament to Mr John Bercow, the Speaker of the House of Commons, in which they state:
	"For the record, Westminster MPs visiting the European Parliament in Brussels and Strasbourg can make a one-off application for a pass which then gives them completely free access to both sites of the European Parliament".
	They suggest in their letter alternative ways of approaching this problem. I do not want to go into them in any detail today, but merely say to the House Committee that it should take this back for the sake of good government and good decision-making, look at it again and suggest to the House of Commons that it does the same.
	I say in conclusion, as I said at the outset, that I very much appreciate the way in which the Chairman of Committees has approached this today. With that sort of spirit, the House Committee can find a resolution for this small issue, which will otherwise become a serious irritant between ourselves and the European Parliament at a time when, with the extension of codecision in the Lisbon treaty that we have now approved, there ought to be a closer relationship with European parliamentarians, not a more distant one. I beg to move.

Lord Howe of Aberavon: My Lords, I got the impression that the way in which the Chairman of Committees explained this matter was largely sympathetic to the point being made by the noble Lord, Lord Tomlinson. I have an antique interest in the proposition because when I was Leader of the House in another place, the noble Lord, Lord Cunningham, who is not in his place, and I introduced access rights for Members of the European Parliament in response to a pressing need. Access rights became necessary as the dual mandate disappeared: as there were no longer people belonging to both Parliaments, it became necessary to open up a bridge of this kind. I notice that I later wrote:
	"More than in any other national parliament, British MEPs were still treated by their Westminster colleagues almost like pariahs, strictly forbidden to enter any of the working parts of the Palace".
	It was in order to remedy that along the lines that are agreed by the Chairman of Committees and the noble Lord, Lord Tomlinson, that these passes were introduced. It is certainly possible that their existence in their present form gives rise to problems in the security field that need to be resolved, but I hope that the House will endorse the generous tone with which the Chairman of Committees introduced this matter. It deserves to be re-examined because a regular, fertile, free cross-relationship between the European Parliament and this Parliament is good for almost everything I can think of.

The Earl of Erroll: My Lords, this is extremely discourteous. I spent some time yesterday with Malcolm Harbour MEP who had to hurry to a meeting here afterwards. He now has to clear security properly. He probably has to do that regularly when he is in this country because he appears at European committees and is very involved in legislation. This is sending out completely the wrong message because as the noble Lord, Lord Tomlinson, said, under the Lisbon treaty, we are now much closer. The EU publication, Your Guide to the Lisbon Treaty, states:
	"Co-decision will become the 'ordinary legislative procedure'. It will extend to new policy areas such as freedom, security and justice".
	That means there will be a closer relationship. If we want to influence some of the laws that come out of Europe that we have to implement in our local legislation, I suggest we cosy up a little bit to the MEPs, not alienate them. The German Parliament has a room that MEPs can rest in, and they are made very welcome. On a practical basis, we have to do something about this. I sometimes wonder whether the other place has removed itself to another planet.

Lord Dykes: My Lords, I thank the Chairman of Committees for his statement, which I support, and the noble Lord, Lord Tomlinson, for his sensible amendment. The real background to this is that overhasty action in another place has indicated once again that even if there are MEPs from an obnoxious party that most democrats do not like, they should none the less be given equal rights.

Lord Hannay of Chiswick: My Lords, like the noble Lord, Lord Tomlinson, I do not make a habit of contesting the opinion of the Chairman of Committees when he comes before the House. I have not done so in the eight years in which I have been here, but the proposal to withdraw certain access privileges from MEPs is a bad one. It is wrong in principle, it is quite disproportionate to the objective pursued, it is untimely, and it reflects an attempted imposition of its will by the other place that is not justified in these circumstances.
	Others have stated that, as the EU Select Committee has recommended to the House, we need closer links now that we are moving into a period in which the European Parliament influences more of the legislation that we, too, consider. The proposal is disproportionate because all British MEPs are to be deprived of privileges in order to exclude a very small number of them. I do not object to that narrower objective being pursued, although one could argue that not much is to be gained by locking that particular door shortly after the BBC has let the horse bolt, but there must be better ways of achieving it than wielding a sledgehammer and landing it on our own foot. The proposal is untimely because the proposed exclusion would take place just when the Lisbon treaty is about to give the Parliament more powers. Finally, does it make any sense at all for us meekly to allow the other place to impose on us a decision that I regard as aberrant and about which it did not even consult us in advance?
	For all those reasons, I hope that we will not need to put this matter to a vote but that the Chairman of Committees will look further into this matter, as he very generously offered to do in his introduction, before any action is proposed. That would surely be the best option.

Lord McNally: My Lords, I speak as a member of the House Committee, partly because the Chairman of Committees often complains that, when he has a tough job to do, he is left to swing on his own. From what he has said and the mood of the House, there is a desire for the House Committee to look at this again, but we cannot do so on our own. I hope that, if the report is referred back to the House Committee, the Leader of this House will talk to the Leader of the House of Commons and the Lord Speaker will speak to Mr Speaker. We cannot run security and issue passes in this place on the basis that one end of the building does one thing and the other end of the building does another; we must have proper co-ordination. If, as the noble Lord, Lord Tomlinson, said when he read out his letter, the leaders of parties in the European Parliament have made suggestions, will he submit that letter to the House Committee so that we can see whether one of those suggestions actually works?

Lord Plumb: My Lords, it is rare to speak from these Benches in support of an amendment tabled by the noble Lord, Lord Tomlinson, but I do so in a spirit of general support from this House for everything that he said and everything that everyone else has said in the context of the threatened withdrawal of passes for Members of the European Parliament. It is obvious to all of us that this is a knee-jerk reaction to the BBC's "Question Time" production and the decision taken then in the other House that certain people should be prevented from coming into the Houses at Westminster. It was a bad decision, and I was delighted when the Chairman of Committees said in his introduction that, given the support for the amendment tabled by the noble Lord, Lord Tomlinson, he would reconsider the decision that has been taken.
	As the noble Lord, Lord Hannay, has just said, it is perfectly obvious that Members of the European Parliament should be allowed to come to this House to give an account of their stewardship, but perhaps more importantly to listen to those of us who have certain positions and views in this House on matters European. That being so, liaison is more important now than it has ever been, so I hope that everyone will support the amendment tabled by the noble Lord, Lord Tomlinson, and that the decision will be reversed so that MEPs can come here, as they should, as directly elected people from this country.

Lord Williamson of Horton: My Lords, the decision of the House of Commons not to make parliamentary passes available to British Members of the European Parliament prejudiced the recommendation of our House Committee and the House Committee has followed the House of Commons. This is easily understandable, but, like all those who have spoken, I could support the relatively mild amendment to refer the issue back to the House Committee and I hope that the Chairman of Committees will follow it.
	Whatever the outcome of the discussion today, it is important that we should maintain close relations with the European Parliament. Sometimes I think that public and parliamentary opinion simply has not caught up with who makes laws in the European Union, particularly where many people repeat the error of stating that most important laws are now made by unelected bureaucrats in Brussels. In any event, changes in treaties and in practice now mean that almost all significant primary legislation in the European Union, apart from certain competition issues, is made in codecision between our representatives in the Council of Ministers and the representatives of the public in the European Parliament.
	The European Parliament has become much more important for Britain. Although our work here in this Parliament is completely dominated by national legislation, contrary to the impression sometimes given, it is none the less true that what comes from the European Parliament is important. I hope that a way can be found to improve our contact with the British Members of the European Parliament.

Lord Grenfell: My Lords, during my six years as chairman of the European Union Committee, I travelled to about 17 or 18 of the national Parliaments in the European Union. I was always struck by the degree to which their Members of the European Parliament were integrated into their national Parliaments. In some countries, such as Denmark, there were even seats reserved for them in the Chamber so that they could be summoned there to answer questions from the national Members of Parliament.
	If any progress is going to be made in trying to bring the citizen closer to the European Union and the European Union closer to the citizen, particularly in this country where there is a major problem about that, it would be utter folly to deny the right of Members of the European Parliament to come and commune with our national parliamentarians.

Lord Stoddart of Swindon: My Lords, the noble Lord, Lord Tomlinson, will be surprised that I support his amendment. I do so on the basis that the proposals from the House of Commons are absurd and make no sense at all. One of the reasons given by the House of Commons is that there will be pressure on the services. But how can that be? The number of Euro MPs has dropped to 78 from its previous total of 84. The reason given by the House of Commons is nonsensical. I have not always believed but I do believe that it is right that we should allow Members of the European Parliament to come to this place to meet Members of both Houses and to attend party meetings with ease, and not to be blocked and have to go through the public entrance. It is correct that the noble Lord, Lord Tomlinson, has proposed this amendment, which I hope will be agreed. I hope that the House of Commons will be sensible and not penalise all the British Members just for the sake of two new Members of the European Parliament. If they are a security threat, that is another matter, but that should be dealt with separately and not by a blanket ban on the legitimate Members of the European Parliament.

Lord Brabazon of Tara: My Lords, I think I can honestly say that I have heard enough. [Laughter] Seldom have I heard such unanimous opposition by noble Lords on all sides and of all political complexions to a House Committee report. I can say that the committee should indeed reconsider this matter, taking into account what has been said today, and we will therefore do just that. Perhaps I may say that the amendment tabled by the noble Lord, Lord Tomlinson, is absolutely correct to refer this matter back to the House Committee, so I recommend that the House should agree with his amendment.

Noble Lords: Hear, hear.
	Amendment agreed.
	Motion, as amended, agreed.

Apprenticeships, Skills, Children and Learning Bill

Bill Main Page
	Copy of the Bill
	Explanatory Notes
	Amendments

Third Reading

Clause 1 : Meaning of "completing an English apprenticeship"
	Amendment 1
	 Moved by Lord Young of Norwood Green
	1: Clause 1, page 2, line 7, leave out "principal" and insert "competencies"

Lord Young of Norwood Green: My Lords, I shall speak to Amendments 1 to 20, 38, 41 and 42. Throughout the passage of the Bill, we have listened carefully to the points that noble Lords have raised. I hope that your Lordships will agree that as a result we have a much improved Bill. During the Report stage my noble friends Lord Layard and Lady Blackstone raised concerns about the use of the term "principal qualification" with regard to apprenticeships. This was never intended to suggest a hierarchy of qualifications within an apprenticeship. Amendments 1 to 15 and Amendment 19 replace the term with "competencies qualification" for both England and Wales, which will ensure that this interpretation does not arise. I can confirm that the change will also be made to the Specification of Apprenticeship Standards for England and for Wales.
	My noble friends also pressed us to be more proactive in our ambitions to raise the bar so that all those who benefit from taking up their apprenticeship offer at level 2 should aspire also to achieve a level 3. Amendment 20 places a duty on the chief executive of the Skills Funding Agency, which will be delegated to the chief executive of the National Apprenticeship Service, to promote the progression to a level 3 apprenticeship where a person has completed a level 2 apprenticeship. Noble Lords might recall that the Skills Commission published its report Progression through Apprenticeships in March. We welcome this report and have given full consideration to its recommendations. We hope that this amendment, together with our imminent response to the commission, will provide the House with the assurance that we are committed to promoting and supporting progression through apprenticeships. We believe strongly that increasing technical and intermediate skills at level 3 is important to our economy and therefore agree that it is important to reflect that the National Apprenticeship Service in England will encourage progression to level 3 on the face of the Bill.
	Noble Lords also asked how the apprenticeship offer will be delivered. We are all clear that we need to attract and encourage many more employers to offer apprenticeship places and noble Lords have suggested that directly funding employers for their apprentices might help in this respect. The current arrangements already allow for this, but relatively few employers take up the opportunity. The National Apprenticeship Service tells us that there are currently 140 directly funded employers which are employing around 40,000 apprentices. However, we believe that there is more work to be done, so we will ask the National Apprenticeship Service to develop and publish an apprenticeship offer delivery plan in 2010-11. In preparing the plan, the National Apprenticeship Service will also review direct employer funding arrangements in England and work with the CBI, the Federation of Small Businesses, the Apprenticeship Ambassadors Network and others to identify and better understand the disincentives for employers, and work out how these barriers can be addressed effectively.
	Finally, Amendments 38, 41 and 42 reflect the commitment we made on Report that the power to make regulations setting out the alternative completion conditions for England and Wales respectively will be subject to the affirmative resolution procedure. I beg to move.

Lord Layard: My Lords, on behalf of my noble friends I welcome the Minister's statement. Both he and the Bill team have laboured mightily to meet our concerns and we have made real progress, both today and on Report. It is extremely welcome that the Government have dispensed with the idea of a principal qualification, which would not have served the interests of young people and their acquisition of knowledge. It is also welcome that he has introduced an explicit duty to promote progression.
	It is extremely important that we now have the published plan of the National Apprenticeship Service showing how it intends to deliver the apprenticeship entitlement. If we have a real plan and carry it through, the Bill will go down as a landmark in the social and economic history of our country.

Baroness Sharp of Guildford: My Lords, we on these Benches also welcome the amendments, particularly Amendment 20. I am pleased to say that throughout the different stages of the Bill we have supported the noble Lord, Lord Layard, in his amendments. I did not think he would get as far as he has got and I am delighted to see Amendment 20.
	I declare an interest as a member of the Skills Commission, which put forward the report on progressions for apprenticeships. Can the Minister clarify the leaks coming out about the funding of apprenticeship places in the next few years? Today, the BBC website contains a report entitled "Training places face spending axe" which claims that there will be a substantial clawback in the spending on training places. Can he assure us that this will not affect adult apprenticeships?
	The Minister indicated that some funding has been devoted to this—indeed, last year there was an increase in the funding devoted to adult apprenticeships—and, as he will know, the number of people looking for apprenticeships has been increasing rapidly. Employers are anxious to take on more adult apprentices but their efforts are limited by the amount of funding available.
	We also welcome the Minister's statement about funding for employers which, as I understand it, will be as much for the 16 to 19 year-olds as it will be for others. However, it would help if he could clarify what the spending plans are. We are expecting a statement on skills strategy. Can he tell us when that statement is due and whether it will include clarification on funding?

Lord Ramsbotham: My Lords, last week the Minister accused me of being prey to a conspiracy theory. Therefore, on Sunday morning, when I was shown a copy of the Observercontaining the headline,
	"Secret Labour plan to axe spending on training for young. Leak reveals cuts of £350 million",
	it led me to think that the Minister was no more privy to that conspiracy than I was.
	Many of us have been concerned on numerous occasions during our discussions on the Bill that although plans are being put down for what we would like to happen, the resources to back them up are not likely to be available. There is an enormous amount of damage in holding out a promised Nirvana to the young only for it to be made unavailable or dashed away. The article referred to a document dated 12 October which circulated within the BIS. Headed "Protected-Funding Policy", it announced the cutting of an initial £100 million which would be found by identifying savings in quangos and administration and a further £252 million which would fall on key government programmes such as Train to Gain, Adult Apprentices and Skills for Life. That would mean a cut of some 335,000 people from the baseline of learners in the 19-plus age group who want either to join courses at further education colleges or with independent training companies or to become apprentices. Not surprisingly, the British Chambers of Commerce has stated in response to this leaked document:
	"This is the latest in a series of fiascos that have hit the skills budget. Companies were actively encouraged to train their employees and they have done this. It will be business that gets the country out of this recession and to do this it will need highly skilled employees".
	Therefore, despite the euphoria at the various amendments that have been mentioned, I must ask the Minister whether we are discussing something that is going to happen or something that people would like to happen, with the Government already realising that those hopes will not be realised.

Lord Baker of Dorking: My Lords, this is the worst education Bill that I have seen in my 40 years in the two Houses. It is being revised even at Third Reading. It is charming to receive letters every day from Ministers explaining the Bill, but the explanations of its full ramifications are usually left to the Commons stages.
	I support entirely what the noble Lord, Lord Ramsbotham, has just said. The one thing that has been missing from all these debates on the Bill is any confirmation of the expenditure behind it. That expenditure has not been made evident by the Government. Indeed, they started the debate by slashing the programme of the Learning and Skills Council which has given the greatest boost to further education that it has had in the past 25 years.
	The noble Lord, Lord Ramsbotham, is absolutely right. This is a Bill that is full of pious intentions but very little practicality. He referred to a report. It was not a leaked, trivial report; it was a report from the Commission of Employment and Skills, a quango set up by the Government and headed Mr Chris Humphries. He has made far-reaching proposals to merge the myriad bodies charged with improving the performance of the UK's 430 further education colleges—which is what the Bill is about—into a single organisation, cutting its combined budget by 50 per cent. That is the Skills Funding Agency. So the proposal from that quango is to cut the spending power of the Skills Funding Agency by 50 per cent. I am not saying that the Government are going to accept that willy-nilly, but we should hear from them whether they are going to accept or reject the proposal entirely, and whether they want to cut expenditure on the agency and give all that money to FE colleges.
	Now, the Skills Funding Agency is fundamental to the Bill. Moreover, it is not the only body that is to be cut. If there is a change of Government, the regional authorities will go, too. Again, they are fundamental to the Bill. So what one is creating with the Bill is an elaborate bureaucratic structure that cannot survive irrespective of who wins the next election. It is a clumsy way of reforming further education and bringing schools into it, and it is fundamentally flawed as a Bill. Many Members will know where I think it is flawed—I spoke to the issue several times in Committee. If there is not to be a further commitment of money not only to this part of the Bill but also to its apprenticeships side and the provision of teaching for offenders in jail—which has been irrationally removed from the Prison Service and given to two authorities: the host authority and the home authority—it will not work.
	This is a Bill of adjectives—of hope and piety—and the bureaucratic structure is so complex. I deal with FE colleges and other parts of the education system every week, and they say that the system that the Bill creates will simply not work. At the moment, FE colleges have one funding agency, while as a result of the Bill they will have four, all of which will be under pressure to cut money over the next four years. The Government are not giving a great encouragement to further education in this Bill but creating a system that will lead to inevitable restrictions on funding in further education. That cannot be right when we should be creating a skills-based economy. If we are going to build all these nuclear power stations, Crossrail and the rest of it, we need technicians at all levels, from the basic technician level to graduate engineers. This Bill does nothing to improve that.

Baroness Blackstone: My Lords, I second what my noble friend Lord Layard said, in thanking the Minister and his colleagues in the two departments concerned with this legislation for listening and for improving the Bill by taking out reference to a principal qualification. This is a huge improvement, since there is absolutely no reason to believe that a technical element in the learning that young people taking apprenticeships undertake should be in any way less important than competency-type skills.
	I am very grateful, as was the noble Baroness, Lady Sharp, for Amendment 20. The principle of progression from level 2 to level 3 apprenticeships is enormously important if we are to have the levels of skills that we need in an advanced knowledge-based economy. The duty to promote this progression is fundamental.
	The third issue that my noble friend Lord Layard and I have been concerned about in our discussions on the Bill is how we attract more employers. I am grateful for what the Minister said in arguing that we need a better direct funding system. However, I had understood that he was going to commit the Government to asking the National Apprenticeship Service to develop and publish an apprenticeship offer delivery plan in 2010-11, and that in preparing this plan the service would review direct employer funding arrangements and work with various employer organisations such as the CBI, the Federation of Small Businesses and the Apprenticeship Ambassadors Network. I may have missed it, but I do not think that he said that in introducing the amendments. When he replies, will he confirm that that is the Government's intention, so that we can have a better understanding of the current disincentives for employers and how we can address more effectively the barriers and difficulties that they currently face?

Baroness Howe of Idlicote: My Lords, I congratulate the noble Lord, Lord Layard, and the noble Baroness, Lady Blackstone, on what they have achieved. I applaud Amendment 20 to Clause 104, because that is the one that many of us in this Chamber were very concerned about. It takes us back to Lord Dearing's points—all those months ago, alas. I am sure that he would be particularly pleased to see this direction. Having said all that, I think that some of the points about funding raised by Members from all sides of the House are very important. In view of some of the stories that have been in the press recently, we should have some reassurance from Ministers when they come to reply that there are satisfactory funds to enable the wishes in this Bill to go forward—whatever we think of it, whether we think that it is totally flawed or has some points to it.

Lord Elton: In view of the powerful interventions by the noble Lord, Lord Ramsbotham, and my noble friend Lord Baker, and the realities of the economic climate, I wonder whether what we want from the Minister is not a promise that she cannot give that lots of money will be available—which will not be—but that in Clause 263, the commencement clause, there will be an undertaking that none of the provisions of this Act will come into force until such time as funds are available for them to be discharged. The clauses dealing with the provision of education in non-maintained schools and the provision of children's centres come into force within two months of the passing of the Bill, whatever we do. The remainder is left to the discretion, as far as I can see, of the Welsh Ministers and the Secretary of State—who is an also-ran, oddly enough, in this part of the Bill. An undertaking that, as far as the Government are concerned, nothing is implemented until the funds are available to carry it out fully would be extremely welcome.
	Having said that, I do not want to keep on interrupting your Lordships, but I am extremely grateful for what has been done with the Bill so far to make what is a pretty bad job slightly better. The ship's sails are set contrary to each other and the rudder is bent, but at least if it does float it will float a little better for the sake of what we have done. What matters is the money.

Lord De Mauley: My Lords, as we have heard, Amendments 1 to 15 and Amendment 19 in this group address concerns raised by the noble Lord, Lord Layard, that the Bill, as it stood at Report, introduced the perception of a possible hierarchy of qualifications where "occupational competencies" were seen as more important than the demonstration of technical knowledge. The government amendments will remove that perception so that it will be obvious that the two component parts of an apprenticeship are seen as equal conditions of completion.
	We welcome the further moves that the Government have made in that regard. Throughout the passage of the Bill through this House, we on these Benches have constantly called for further definition and clarification of the composition and requirements of apprenticeships. Furthermore, we agreed with the noble Lord, Lord Layard, that it seems inappropriate to specify so particularly that occupational competencies are more important than technical ones.
	On Report, the Minister said that he believed that it would be difficult for employers if there was a risk that apprentices could have all the necessary technical knowledge but would still not have the relevant competencies that would enable them to do a job. Consequently, it appeared that occupational competencies were more important than technical expertise. I welcome the reconsideration that the Minister has given to these amendments.
	We on these Benches are also concerned to ensure that an apprenticeship certificate will be awarded only to those with the requisite competence to enable them to carry out a job effectively, but we agree with the noble Lord, Lord Layard, that there is no need to specify whether occupational or technical competencies are more important. Apprentices will need both to carry out a job. After all, it is the technical side of an apprenticeship that often separates it from any other form of work-based learning. We welcome the amendments, which remove the emphasis on occupational qualifications.
	Amendments 38, 41 and 42 address the promise that the Minister laid out on Report to make the regulations allowing alternative completion conditions subject to affirmative resolution, which requires a debate in both Houses. Noble Lords will be aware of our commitment to the apprenticeships brand and we remain wary of the alternative completion conditions, which we feel have the potential to dilute that brand. We welcome the amendments tabled here which provide further reassurance that that is not the Government's intention. I very much hope that that remains the case.
	In that regard, will the Minister update us on any discussions with Barnardo's and Rathbone regarding the pre-apprenticeship contract of workplace learning, which he helpfully introduced on Report? Will he confirm once again that this will be a unique programme for those in the Barnardo's and Rathbone schemes? Will he also confirm that it will only be for a period of up to a maximum of six months? What would happen to someone on a pre-apprenticeship contract, who reached six months in that contract, but could not find an employer to start their true apprenticeship training?
	While we are concentrating on further amendments to the apprenticeship clause, the Minister has been asked by—among other noble Lords—my noble friend Lord Baker for an update on the status of plans for financing apprenticeships. Those who read the papers this weekend and, indeed, who have listened to this debate will be aware that documents were leaked detailing, as the noble Lord, Lord Ramsbotham, said, some £350 million of cuts for 2010-11 that will, as an Observer article goes on,
	"slash the number of training places on offer by hundreds of thousands".
	The article I saw stated that the cuts would mainly affect those in the 19-plus age group, who want to join courses at FE colleges and independent training companies to become apprentices. The noble Baroness, Lady Sharp, also referred to this. Does the Minister accept that these facts and figures, worryingly, appear to cast doubt on the Government's commitment to apprenticeships and reskilling Britain—all at a time when it is most necessary? Given the statements of commitment that have been made throughout the Bill, this is a disappointing turn of events. I look forward to the Minister's response to my noble friend Lord Elton's suggestion.
	Like the noble Baroness, Lady Sharp, we welcome the intentions behind Amendment 20. We believe that it is of the utmost importance to make sure that people are given the opportunity to train, to acquire a skill, to reskill and to fulfil their ambitions. We want to ensure that all are given the greatest opportunity to ensure that their aspirations and choice, rather than bureaucracy and burden, lead the way in skills, and that no one will be held back. We also welcome the government amendment, which will promote the desirability of those training at level 2 undertaking apprenticeship training at level 3.
	We on these Benches want to see more and more people taking up apprenticeships and moving forward with them. To do this, we would simplify the structure, decrease the paperwork involved and so make it easier for companies to run apprenticeships. We would create a streamlined system, which would allow people to move forward with their training and gain the skills necessary to equip them for the workplace—the skills that employers really need and are relevant to jobs.
	One cannot simply legislate and hope that these benefits will accrue. Can the Minister explain how he hopes the new clause will function in practice? We welcome the intentions, but we wait to see whether they are supported by a practical and effective structure which would truly promote participation in level 3 apprenticeships.

Lord Young of Norwood Green: My Lords, I must admit that I was hoping for rather more concord than we have perhaps seen in this debate. In relation to the point of the noble Baroness, Lady Sharp, about skills strategy statements, I think the Secretary of State will be making a statement about that tomorrow. I hope that some concerns will be addressed in it.
	The noble Lord, Lord Ramsbotham, returned to the question of whether I was being unfair as regards conspiracy. My first piece of advice is not to believe everything you read in the newspapers; it does not mean that they are facts. I reject what I felt was a rather wide-ranging criticism when he said that this is the latest in a round of fiascos. I will come to our track record on apprenticeships and skills in a while.

Lord Ramsbotham: In talking about the latest fiasco, I was quoting the chairman of the chambers of skills and commerce. That was not me speaking; it was the chambers of commerce.

Lord Young of Norwood Green: My apologies to the noble Lord. I reject the criticism of the chambers of commerce. I would argue that it has been the beneficiary of significant government funding in relation to skills and training.
	The noble Lord, Lord Baker, made another wide-ranging contribution, which I am not sure focused always on the amendments. Certainly, I sometimes fear that ever since his Education Act, no other Bill could ever satisfy him. It is difficult to know how to address the criticism that this is "the worst Bill ever seen". Perhaps someone somewhere once said, "Well he would say that, wouldn't he?".
	In relation to FE colleges, I cannot help but remind the noble Lord that when we came to power in 1997, the National Audit Office—not us—said that we had inherited a crumbling infrastructure; so much for the contribution to FE by previous Conservative Administrations. We do not have pious intentions; we put our money where our policies and our mouths are. That is why we have invested more than £2 billion, with the result that many FE colleges have benefited from having new buildings.
	I was absolutely puzzled by the noble Lord's reference to regional authorities being done away with. I think he was confusing his party's possible policies—should it ever assume power—with ours. We are absolutely committed to RDAs. I understand people's concerns in relation to funding generally. The noble Lord, Lord Elton, sought an assurance that we would commence this provision when funds were available. We are absolutely committed to funding the Bill's provisions. Time and again we have reinforced our commitment to apprenticeships. We remain confident that we will deliver the targets we have set. A separate discussion is going on across government about how to make the most of the money that is available.

Lord Baker of Dorking: I pay generous tribute to what the Government have done for further education. The past 25 years, under the previous Conservative Government and the present Government, have been a golden age for further education. As a result, wonderful colleges have been built which no local authority would ever have funded by itself. However, that has now stopped absolutely. The capital programmes of further education colleges have been slashed. I can give the noble Lord a list of the institutions that have now had their funding withdrawn. We on this side seek an undertaking from him that the funding of FE colleges will not be cut in the course of the next two years.

Lord Young of Norwood Green: Certainly we could not meet all the commitments that FE colleges were invited to submit, but the funding has not stopped and some programmes are still going ahead. Therefore, I reject the view that they have been slashed. To my knowledge there are no cuts, although the programme is not advancing as it has in the past. I shall see whether I can give a more accurate answer on that.
	As I said, I hope that a Statement on funding will be made tomorrow. I say once again that, given our track record, I am absolutely baffled by the suggestion that the Government are not fully committed to apprenticeships, skills and training. More money is being spent on skills and training than ever before. As I have said on a number of occasions, noble Lords should look at our track record on apprenticeships, given that the apprenticeship programme we inherited was nearly dead on its feet.
	I thought the noble Lord, Lord Hunt of Wirral, was inviting me to give way but I say to him that the facts speak for themselves. If he wishes me to reiterate the facts, I will do so. Previously, there were only 65,000 apprenticeships, and just over a quarter of participants completed them, whereas now there are a quarter of a million apprenticeships and two-thirds of participants complete them. As I say, the facts speak for themselves.

Lord Hunt of Wirral: The Minister forces me to intervene, which I had not intended to do. However, I recall that he very kindly promised no longer to maintain the fiction that a disastrous situation had been inherited. The Government Front Bench conceded that by getting to 65,000 from zero the concept of the modern apprenticeships had been proved. It should then have gathered pace and accelerated, but over 12 years it did not. However, let us not go backwards but forward as we strongly support the concept of the modern apprenticeship.

Lord Young of Norwood Green: My Lords, we shall have to agree to disagree; I stand by the statement that I have made.
	My noble friend Lady Blackstone asked me to reiterate the assurance on delivering apprenticeships. We will ask the National Apprenticeship Service to develop and publish an apprenticeship offer delivery plan in 2010-11. In preparing this plan, the NAS will review direct employer funding arrangements in England and work with the CBI, the Federation of Small Businesses, the Apprenticeship Ambassadors Network and others to identify and better understand disincentives for employers, and work out how these barriers can be addressed effectively.
	The noble Lord, Lord De Mauley, asked for an assurance on Rathbone and Barnardo's. I am happy to confirm that the arrangements are as I set out on Report. It is intended that the pre-apprenticeship contract period will be strictly limited to six months. If Rathbone and Barnardo's could not find an employer, they would have to address that in each individual case. The track record of those organisations demonstrates a real determination to ensure that they get young people into employment. If they could not succeed on an apprenticeship, maybe they would have to find another route. I do not know. The people who are more used to dealing with such cases should be able to provide the answers, but I am confident that they do not easily give up on young people. They have a good track record. We are trying to assist them and we have certainly done that.
	We are spending more than £1 billion this year on apprenticeships, which is a record amount. We are committed to sustaining the maximum number of not only adults' but young people's apprenticeships. As I have said previously, we spent a large amount on adult apprenticeships last year and we are trying to sustain that this year—possibly not at quite the level of last year. We have indicated that while our focus was on ensuring that we generated the maximum number of apprenticeships in the 16 to 18 age range, there was more flexibility in the 19 to 24 age range. Given all the speculation that there has been in various press articles, the matter will be better addressed tomorrow when my noble friend the Secretary of State makes his Statement.
	I hope that I can end on a positive note. I thank my noble friend Lord Layard for his generous recognition that we have worked hard to address and meet noble Lords' concerns. I thank all noble Lords have who have responded to efforts to improve the Bill. As with all Bills, it is capable of improvement en route. I believe that I have addressed most of the questions raised. I urge noble Lords to support the amendment.
	Amendment 1 agreed.
	Amendments 2 and 3
	 Moved by Lord Young of Norwood Green
	2: Clause 1, page 2, line 18, leave out "principal" and insert "competencies"
	3: Clause 1, page 2, line 20, leave out "principal" and insert "competencies"
	Amendments 2 and 3 agreed.
	Clause 2 : Meaning of "completing a Welsh apprenticeship"
	Amendments 4 to 6
	 Moved by Lord Young of Norwood Green
	4: Clause 2, page 2, line 41, leave out "principal" and insert "competencies"
	5: Clause 2, page 3, line 6, leave out "principal" and insert "competencies"
	6: Clause 2, page 3, line 8, leave out "principal" and insert "competencies"
	Amendments 4 to 6 agreed.
	Clause 17 : Transitional provision: England
	Amendment 7
	 Moved by Lord Young of Norwood Green
	7: Clause 17, page 8, line 4, leave out "principal" and insert "competencies"
	Amendment 7 agreed.
	Clause 22 : Transitional provision: Wales
	Amendment 8
	 Moved by Lord Young of Norwood Green
	8: Clause 22, page 9, line 41, leave out "principal" and insert "competencies"
	Amendment 8 agreed.
	Clause 27 : Contents of specification of apprenticeship standards for England
	Amendment 9
	 Moved by Lord Young of Norwood Green
	9: Clause 27, page 12, line 18, leave out "principal" and insert "competencies"
	Amendment 9 agreed.
	Clause 31 : Contents of specification of apprenticeship standards for Wales
	Amendment 10
	 Moved by Lord Young of Norwood Green
	10: Clause 31, page 14, line 16, leave out "principal" and insert "competencies"
	Amendment 10 agreed.
	Clause 32 : Meaning of "apprenticeship agreement"
	Amendments 11 to 13
	 Moved by Lord Young of Norwood Green
	11: Clause 32, page 15, line 21, leave out "principal" and insert "competencies"
	12: Clause 32, page 15, line 28, leave out "principal" and insert "competencies"
	13: Clause 32, page 15, line 30, leave out "principal" and insert "competencies"
	Amendments 11 to 13 agreed.
	Clause 39 : Interpretation of Chapter
	Amendments 14 and 15
	 Moved by Lord Young of Norwood Green
	14: Clause 39, page 17, line 39, leave out "principal" and insert "competencies"
	15: Clause 39, page 17, line 41, leave out "principal" and insert "competencies"
	Amendments 14 and 15 agreed.
	Clause 44 : Power to require provision of education by further education institution
	Amendment 16
	 Moved by Lord Young of Norwood Green
	16: Clause 44, page 26, line 39, at end insert—
	"(3A) Before giving a notice under subsection (2) imposing a requirement on a governing body, a local education authority must consult—
	(a) the governing body, and
	(b) such other persons as the authority think appropriate."

Lord Young of Norwood Green: My Lords, Amendment 16 fulfils the commitment that I made during our debate on Report to re-examine the power for local authorities to direct colleges to accept a named individual. Noble Lords will recall that there was strong feeling that this power should be exercised only following statutory consultation with the governing body of the college. We have listened to noble Lords and this amendment ensures that this is the case. It also enables consultation with other relevant persons.
	Amendment 18 is a drafting correction to clarify the meaning of Clause 65. This confirms our intention that the prohibition on charging should apply only to courses funded by the YPLA. This ambiguity was drawn to our attention by the noble Lord, Lord Lucas, whom I must once again thank for his keen analysis of the Bill. I beg to move.

Lord Lucas: My Lords, I am grateful for the very elegantly drafted Amendment 18.

Lord De Mauley: My Lords, from these Benches we, too, are grateful that the Minister has listened to our concerns. We welcome the commitment that local education authorities must consult FE colleges before exercising the powers afforded to them in Clause 44, which enable them to require an FE college to provide education to certain specified individuals. There was cross-party support for our amendment on Report, so we are most grateful to the Minister for taking this on board and committing to put our rather mild and reasonable amendment in the Bill. We believe that this will help to balance the rights and powers of the FE colleges and local education authorities, in this instance, and so lead to a more productive consideration of the needs of the young person. It will also help to allay the concerns of FE colleges in terms of the independence of the institution and safeguarding its staff and students. We graciously accept the amendments tabled by the Minister and extend our thanks to him.

Baroness Sharp of Guildford: We on these Benches supported the amendment and so are delighted to see it in the Bill. I know that it will be a great relief to the further education colleges and to the Association of Colleges, which I believe promoted the amendment, as it had been worried that there could be a danger that difficult-to-handle young people would be wished on colleges without any consultation. It is obviously right that there should be consultation and I thank the Minister for the amendment.
	Amendment 16 agreed.
	Clause 50 : Persons detained in youth accommodation: further provision
	Amendment 17
	 Moved by Baroness Morgan of Drefelin
	17: Clause 50, page 34, line 43, at end insert—
	"(6A) Subsection (6B) applies in relation to a detained person if it appears to the host authority that the person is to be released from detention in relevant youth accommodation.
	(6B) The host authority must provide to the home authority any information they hold which—
	(a) relates to the detained person, and
	(b) may be relevant for the purposes of, or in connection with, the provision of education or training for the detained person after the release.
	(6C) The information required to be provided under subsection (6B) must be provided at such time as the host authority think reasonable for the purpose of enabling education or training to be provided for the detained person after the release.
	(6D) Nothing in subsections (6A) to (6C) requires the host authority to provide to the home authority information which it appears to the host authority that the home authority already have."

Baroness Morgan of Drefelin: My Lords, we turn to the part of the Bill concerned with the education of young offenders. Amendment 17 and the others in the group concern young people in custody and will place a duty on the host authority to ensure that information about the young person's education be shared with their home authority around the time of their release. This ensures that information about their education in custody—including, for example, about their progression—can inform their further learning.
	I indicated on Report that we were minded to table this amendment, as it is absolutely right that home authorities, working with the relevant youth offending team, should have this information to make effective resettlement plans. We have also listened to the concerns of noble Lords that there should be a record of the progress that a young person makes in custody. I hope that this amendment will reassure noble Lords.
	Many noble Lords, particularly—it will not surprise your Lordships to hear—the noble Lord, Lord Ramsbotham, as well as the noble Lord, Lord Elton, spoke eloquently during Report and the earlier stages about the need to screen young people in custody for special educational needs and communication difficulties. I agree absolutely with this, which is why we are supporting the Communication Trust to extend the use of screening tools and staff training across youth custody settings and to youth offending teams, during both this year and the next financial year. This work will draw on the services of experts such as Professor Karen Bryan to feed in the learning from her research and pilots in YOIs.
	We have also agreed with the Communication Trust that next year it will conduct a review of the impact of this work. This is something that noble Lords will be interested to hear more about when it has been undertaken. I look forward to debating this in the future, when we can evaluate the success of the changes introduced by the Bill.
	In addition, I commit today to earmarking some training for the 4,000 extra specialist dyslexia teachers to work with youth custody and youth offending teams in the community. The Communication Trust and the Dyslexia-SpLD Trust have confirmed that they are happy to work with us on this.
	I am grateful for the emphasis that the House has put on the importance of the special educational needs and communication needs of young offenders, and hope that noble Lords will support the amendment. I beg to move.

Lord Ramsbotham: My Lords, I begin by expressing my gratitude to the Minister for her care and attention in listening to what has been said on the issue over some time, during the passage both of this Bill and a previous one. I also thank the Bill team for the care that they have taken. I had a most productive meeting with them last Thursday, for which I am enormously grateful.
	The Government's commitment that the Communication Trust will extend the use of screening and staff training to youth custody settings and youth offending teams next year, coupled with the commitment to assess the communication problems of all children before they start primary school, indicates that at last we are addressing something that was described to me as a scourge of the 21st century that is seriously impacting on the ability and readiness of every child in the country to undertake education. If they are not ready to undertake education and communicate with teachers, the results are seen in the truancy and exclusions that follow. This marks something very serious in the attempt to enable children to take advantage of education, which has been missing for too long. It has been an extraordinary 10 years since I first became aware of the issue. I have met countless Ministers and officials, made the same arguments over and again and wondered, with the evidence from Professor Karen Bryan that has been referred to staring everyone in the face, why one has to push so hard to get a glimpse of the blindingly obvious accepted in legislation.
	Mention has rightly been made of Professor Karen Bryan's important research, which starkly revealed both the urgency of the need and the ability of people such as trained speech and language therapists to do something about it. We are not looking for the cure—it is there already and should be mobilised. Professor Bryan would be the first to acknowledge that this could not have been accomplished without the foresight, generosity and funding of Lady Helen Hamlyn and her trust. It is right to draw that to the attention of the House, because Lady Helen has performed an enormous service to the nation, and in particular to all the children who will benefit from having their communication problems identified and ameliorated so that their future may be better. I hope that noble Lords will not mind me bringing this to their notice, because it is something above and beyond the call of duty that should be officially recognised.

Lord Baker of Dorking: My Lords, as this is probably the last occasion on which I will speak on the Bill, I thank the two Ministers for their handling of it. They have shown great patience, courtesy and thoroughness, and I hold them in no way responsible for the Bill. They did not draft it but had to pick it up, and they have done a very good job of trying to explain what it is about and to improve it. They have improved it to some extent.
	I have often been accused of making Second Reading speeches in my interventions on this Bill but I make no apology for that. In the debates on the area with which we are now dealing—that is, the transfer of the training and education of young offenders from the Ministry of Justice and the Prison Service to two local authorities—it was not made clear at Second Reading in the Commons, at Second Reading in the Lords or in Committee in the Lords how this extraordinary change was going to be worked out. It was only 10 days ago that we had any understanding of that, and I have grave misgivings about whether this is going to be the right way to do it.
	Instead of one authority being responsible for the young offender, two authorities will be involved. One will be the host authority where the young offender institution is, and in a previous debate I quoted the big young offender institution in Wigan. The host authority will provide the education but the offender's home authority—let us say it is Essex—will have to decide how the young offender is educated. The offender will be given an individual learning programme devised in Essex, but it may be three or four years since the authority in Essex heard anything about him. He may have disappeared from the authority's radar but the authority will suddenly find that it is responsible for him and will have to devise a learning programme.
	The amendment says that when the young offender is released, the host authority, Wigan, has to send details of his record to Essex. The record of a young offender is very extensive. It will contain, for example, details of any previous offences, psychiatric reports and reports of any persons who have interviewed him. All that will go to Essex, but the authority there will possibly have heard of this person only in the previous two or three months and the young offender may not go back there. He may go to Birmingham, London or Manchester, yet Essex will have the responsibility. I do not see how that responsibility will be discharged.
	I do not believe that this system will operate effectively. The Government are going to try to operate it but I think that ultimately it will break down, which will be a great pity. The emphasis must be on the host authority where the prison or young offender institution is based. Therefore, I have grave misgivings about this matter. I do not think that the issue has been properly debated in either House, and I cannot believe that it has the support of the Home Office—or, now, the Ministry of Justice—because I do not think that it will lead to the better education and training of detained persons. Therefore, I regret it.
	If you give the home authority the duty to create an individual learning programme for a young offender who is in another part of the country, that establishes a right in the eyes of the young offender with regard to that programme. Anyone who has been involved with prisons, such as the noble Lord, Lord Ramsbotham, will tell you that prisoners and young offenders are very clear about their rights and they will certainly demand services that may not be available. That will lead to a great deal of conflict. It is too late now—this provision will not be changed and will go into law—but I really do not think that this system will operate effectively.

Lord Elton: My Lords, as I said on an earlier group of amendments, I think that we are tinkering with a ship which may not float, but if it does float I am very glad that this amendment has been put into the Bill. It relates to an amendment that I tabled at an earlier stage. It is particularly important that the duty to provide a record to follow the young person when he leaves rests with the host authority, which knows where he is, and not with the home authority, which, as my noble friend said, may not have heard of him before and may have forgotten him before he comes out of custody.
	We had discussions in Committee and again on Report about the nature of records, and I repeat my anxiety: there should be a uniform system of keeping, as well as of transmitting, records between concerned authorities. If that is not done, the result will be chaos, with lost documents and lost learning paths. Therefore, I trust that the duties and that method will be clearly set out in the guidance that the Minister has told us will be issued.
	I join other noble Lords in welcoming the acceptance of the need to screen for dyslexia and other difficulties. I endorse what the noble Lord, Lord Ramsbotham, said. He and I share the view that, if we spent a tithe of what we spend trying to deal with people when they become criminals on stopping them becoming criminals, we would save a huge amount of money and very largely increase the sum of happiness in this country.
	This is a small step in that direction, and I applaud it with thanks. Also, as I do not expect to speak again in this debate, I thank the Minister for the exemplary care that she has taken of the concerns of your Lordships, and for the very effective support, often far beyond the call of duty, from the Bill team, a mixed Bill team from two departments who seem to have welded together and become very effective for the short time that they have been in the same service.

Baroness Garden of Frognal: My Lords, from these Benches, I, too, thank the Ministers and the Bill team for taking note of the concerns that have been expressed throughout our debates in respect of provision for young offenders, and welcome Amendment 17 in particular. We support the amendments moved on Report and today, and the other developments. I welcome the Minister's comments in her introductory remarks and hope to hear in due course how the measures are actually working out for the institutions—for the local authorities—and, in particular, for the young offenders that they are designed to help. Again, we express our appreciation for the amendments.

Viscount Eccles: I follow both my noble friend Lord Baker and the noble Baroness, Lady Garden, because I, too, worry that the system is not going to work. It strikes me as a pig in the middle system. The young offender institution is the pig in the middle and the ball is thrown over its head from a host authority, which of course will be identifiable, to a home authority, which will not be so easily identifiable. Very likely, as with my grandchildren, the ball will fall to the ground. May we have an assurance that there will be ex post evaluation of a proper statistical kind that clarifies all the problems that arise with the identification and the duties of the home authority?

Baroness Howe of Idlicote: My Lords, very briefly, I, too, thank the noble Baroness for what she has achieved. I know that there are differences of opinion about the whole business of transferring responsibility for education to the local education authority. No doubt there are strong reasons why those who are experts in the field are worried about that. I have expressed a slightly different opinion on that on the basis that at least local education authorities will now have to pay for the education, whereas before it was all too easy to pass the whole business of difficult young people's education onto the budget of the Home Office.
	Like other noble Lords, I particularly applaud the fact that more attention will be paid to testing young people for special educational and communication needs, that in the very difficult financial situation that we all know and are concerned about, there will be some support, and that specialist dyslexia organisations, and so on, will be involved. What I am sorry and sad about, alas, is that I do not think that there has been movement on, when they come out of prison, assessing how far they have progressed in the education provided within the prison. Perhaps that is altogether a step too far in the current climate, but it could have been the basis for a great deal more knowledge about how we should proceed.
	I very much thank the noble Baroness for what she has achieved, and the Bill team, because I know that a lot of time has gone into our consideration. Attention has been paid to the many comments and expert views from all around your Lordships' House because here, as in so many other areas, we have people who have done it, who know what the situation is and can comment on it. Anyhow, my limited but nevertheless warm thanks go to the noble Baroness, the noble Lord and the team.

Lord Lucas: My Lords, history has paid a great deal of attention to the talents of Alexander the Great, but not much to the talents of the people who created the Gordian knot. With this Bill, we can perhaps begin to understand a little of that talent. I urge my noble friends on the Front Bench to unsheathe their sword about this time next year and hack at this construction with the aim of reaching something clear and simple as a solution. I urge my noble friend Lord Baker and the noble Lord, Lord Ramsbotham, to spend the next few months educating our Front Bench about what should replace this Bill because I am sure their wisdom can be put to good effect by a Government more attuned to simplicity than complexity.

Lord De Mauley: My Lords, these government amendments address the concern, which has been raised many times during our debates in this area, that the education given to young offenders must be joined up and allow for progression and advancement through and after custody. I pay particular tribute to the noble Lord, Lord Ramsbotham, and my noble friend Lord Elton whose efforts on the Bill not only, but especially, in this area have been so beneficial to it.
	Part of the original intention behind our Amendment 124B, which was agreed in Committee because of support from around the House, was that there should be a second assessment when the young person was to leave detention. On Report, we accepted a redrafted and reformed amendment tabled by the Minister because it demonstrated that the Government had been convinced of the merit of our proposal, indeed, so much so that they had expanded it to cover both numeracy and literacy. However, the Minister did not see fit to accept the requirement for a second assessment. We accepted the arguments against it as significant concerns had been raised. For example, it was feared that a young person might have to remain in custody past his sentence term if he did not sit the assessment in a timely fashion. We accepted those reservations, but remained concerned that there was a risk that the progress of a young person in education in custody would not be brought to the attention of the home authority. For that reason, we supported the amendment tabled by the noble Lord, Lord Ramsbotham, and I am delighted that the Government have responded to his concerns.
	We accept that there is a potential risk of too much assessment. It therefore seemed sensible to look for another way that would ensure that note was taken of progress made, consistency could be achieved when a young person was released back to the home authority and there was not too much assessment. In these terms, it seems that the Minister has risen to the challenge. Notwithstanding the broader concerns of my noble friends Lord Elton, Lord Baker and Lord Lucas about whether the ship will float, we welcome these amendments as far as they go and hope that they will help to alleviate some of the problems of a potentially disjointed approach. We look forward to hearing more in due course about the further developments with the communications trust, to which the Minister has alluded.

Baroness Morgan of Drefelin: My Lords, I thank noble Lords for their remarks in this important debate as we come to the closing parts of the progress of the Bill through this House. Over many months, we have developed a helpful, positive and constructive understanding about what needs to be done to the Bill and more widely than the confines of the statute. We have also developed an understanding about the work that we can do with the charity sector in the real world to take forward and address the concerns that noble Lords have raised in this House.
	I thank the noble Lord, Lord De Mauley, for his remarks and for being very constructive in helping us to identify a practical way of dealing with the concerns expressed in Committee about assessment on exiting detention. I can reassure the noble Viscount, Lord Eccles, that the Bill will be subject to post-legislative scrutiny and that Ofsted will be responsible on an annual basis for monitoring the effectiveness of education in custody. As I understand it, that will reach into the role of the host and the home education authorities.

Lord Ramsbotham: The Minister mentioned that Ofsted will be responsible for assessment. May I remind her that Ofsted inspects education in young offender institutions with Her Majesty's Inspectorate of Prisons only to make certain that education is looked at in the context of prisons? In view of our concerns about the responsibility for education being passed away from the Ministry of Justice, the presence of Her Majesty's Inspectorate of Prisons to see whether education is being conducted appropriately will be as important, if not more so, than Ofsted's contribution.

Baroness Morgan of Drefelin: I thank the noble Lord for that insight. I am sure that, with his experience of these matters, he is absolutely right.
	I thank the noble Lord, Lord Baker, for his very kind remarks. I was very interested in his third Second Reading speech, which we were able to enjoy today. I listened very seriously to his remarks. I remember education in the youth justice system featuring very highly on the list of noble Lords' concerns at Second Reading, and it was examined in depth in Committee. This House has done a very good job of scrutinising the youth justice parts of the Bill, and because of that we can table amendments, such as those before us now, that further refine the proposals before us.
	The objective of the Bill's provisions is to bring young people in custody under primary legislation on education for the first time. Signatories to the UN Convention on the Rights of the Child, in which this House has a great interest, have repeatedly called for that. We wanted to ensure that young people in custody receive education that is overseen and delivered in accordance with the education that they could expect if they were in the mainstream education system. This has to be the right way to go.
	I agree with noble Lords that the Bill, as you read it off the page, is a complicated piece of legislation, as is often the case, but it aims to join up arrangements for education and training with the mainstream education sector, and I believe very strongly that it will help to ensure that young people in youth custody will no longer be the poor relations. I therefore very much welcome its provisions.
	The noble Lord, Lord Elton, again spoke very generously about the work that we, and particularly the Bill team, have been doing. He voiced concerns about the need for a uniform system of record keeping, and he is absolutely right that the Youth Justice Board has a programme. It is called Wiring Up Youth Justice, and includes the eAsset system, which we talked about on a number of occasions in Committee, and secure e-mail. Importantly, it will also include the development of a new YOT case management system, which I believe will deal with the noble Lord's concerns and will cover both England and Wales. The noble Lord was concerned that we should be clear in statutory guidance that local authorities should work with YOTs to integrate information-sharing on a person's education, and that these information-sharing systems should be well described in guidance so that proper records are kept and there is appropriate access for different parties who have the interests of the young person at heart.
	Finally, I thank the noble Lords, Lord Ramsbotham and Lord Elton, for their advice on how to progress the House's concerns about, in particular, communication, assessment and special educational needs. I am very grateful to noble Lords for their generosity with their time in helping us come to a solution. With that, I hope that noble Lords will support this amendment.
	Amendment 17 agreed.
	Clause 65 : Prohibition on charging
	Amendment 18
	 Moved by Baroness Morgan of Drefelin
	18: Clause 65, page 48, line 13, leave out "to a person providing" and insert "in respect of"
	Amendment 18 agreed.
	Clause 93 : Meaning of "apprenticeship place"
	Amendment 19
	 Moved by Baroness Morgan of Drefelin
	19: Clause 93, page 64, line 2, leave out "principal" and insert "competencies"
	Amendment 19 agreed.
	Amendment 20
	 Moved by Baroness Morgan of Drefelin
	20: After Clause 104, insert the following new Clause—
	"Promoting progression from level 2 to level 3 apprenticeships
	(1) The Chief Executive must promote the desirability of persons within subsection (2) undertaking apprenticeship training at level 3.
	(2) The persons are those who—
	(a) are undertaking apprenticeship training at level 2,
	(b) have completed an English apprenticeship in relation to an apprenticeship framework at level 2, or
	(c) hold an apprenticeship certificate at level 2.
	(3) For the purposes of this section apprenticeship training is at a particular level if it might reasonably be expected to lead to the issue of an apprenticeship certificate at that level.
	(4) The following provisions of Chapter 1 of Part 1 apply for the purposes of this section—
	section 1 (meaning of "completing an English apprenticeship");
	section 12 (meaning of apprenticeship framework and level of an apprenticeship framework).
	(5) Section 95(4) (meaning of apprenticeship certificate and level of an apprenticeship certificate) applies for the purposes of this section."
	Amendment 20 agreed.
	Clause 128 : General duties
	Amendment 21
	 Moved by Baroness Morgan of Drefelin
	21: Clause 128, page 81, line 2, at end insert—
	"(6A) The Secretary of State must publish a direction given under subsection (6)."

Baroness Morgan of Drefelin: My Lords, in moving government Amendment 21, I shall speak also to the 12 other amendments in my name in this group. The debates in Committee and on Report have shown a welcome level of support for our plans to set up Ofqual as an independent qualifications regulator. The thoughtful and knowledgeable contributions made by so many of your Lordships have been most welcome. We laid a number of amendments on Report seeking to improve the provisions, including, through stronger safeguards, the need to provide absolute assurance as to Ofqual's independence. We have felt strongly the need to meet the concerns of noble Lords on this. We now complete that process with the three further sets of amendments to which I committed on Report.
	Amendment 21 was inspired by an amendment from the noble Lord, Lord Lucas. We had already said we would publish any direction given to Ofqual requiring it to have regard to aspects of government policy, but this amendment requires that to happen. I therefore hope that noble Lords will support it. We laid a number of amendments on Report to make sure that the power to set minimum requirements was used only in exceptional circumstances. On Report, I agreed to consider whether it might be appropriate to provide additionally for parliamentary scrutiny. These amendments therefore provide for minimum requirements to be specified through an order subject to affirmative resolution in both Houses, following consultation with Ofqual and others. Parliament will be able to accept or reject the order. These amendments are tabled in response to issues raised by the noble Baroness, Lady Walmsley.
	Finally, I have tabled an amendment which fulfils my commitment on Report to consider whether Ofqual could look at attainment. In preparing this amendment, we were conscious of the need to avoid what many could describe as mission creep—I think that the noble Baroness, Lady Walmsley, said that last week at Report stage—and, in particular, we are concerned to avoid any confusion with Ofsted's role. I would therefore expect Ofqual to work with Ofsted to ensure that there is no possibility of overlap.
	This amendment requires Ofqual in its annual report to set out how far its objectives have been met. In relation to its qualifications standards objective, Ofqual will have to say what information about attainment in school qualifications it has taken into account. It will also have to provide details of that information, which could be a description of the information or the information itself. This requirement will strongly improve transparency and therefore, I hope, confidence in Ofqual. In summary, these three sets of amendments improve further the provisions establishing Ofqual. I beg to move.

Baroness Walmsley: My Lords, the majority of these amendments provide that an Ofqual determination is to be approved by a resolution of both Houses of Parliament. I little thought when I tabled Amendment 177 on Report that it would take 10 amendments to bring it into force at this stage. However, I welcome them, particularly Amendment 139, which is the provision that makes it quite clear that this has to be done by affirmative resolution. In the future, should an unwise Secretary of State seek to meddle inappropriately in the work of Ofqual and such a determination come to your Lordships' House, I relish the opportunity to pull it to pieces.
	I do not like the power of determination now any more than I did in the first place, but I recognise that we now have more transparency, parliamentary scrutiny, and that Parliament will make its opinion known about the extent to which it is appropriate for a Secretary of State to meddle in these matters. We have consultation and a limited scope for determinations; there is publication and, of course, Ofqual is able to refuse if it thinks it inappropriate. Again, I welcome this set of amendments and I thank the Minister for her consideration and the work of the Bill team to make it all happen.
	Amendment 30 is a different matter. It asks Ofqual to put certain things into its annual report, again in response to amendments I laid on Report. My intention really is mission creep and I would like to know that there is someone out there who will look at underlying educational standards over a period of time. Although these amendments do not go as far as I would like, I welcome them and have a few questions for the Minister. Will the information in the annual report set out quantitative data separately for each GCSE, A-level or diploma line showing the analytical bases and margins of error for each qualification? Will those be compared with previous years or will one have to scrutinise each annual report individually in order to arrive at those comparisons? Will it show how the standards set by different awarding bodies compare with each other? If the report can do all those things, it will be an effective way of ensuring that Ofqual focuses on maintaining standards over time and make it easier for the reader of an individual annual report to get a clear impression of what is going on. If the noble Baroness cannot answer those questions now, I am happy for her to write to me.

Lord Lucas: My Lords, I am grateful to the Minister for government Amendment 21 and for her kind words. Perhaps I may ask her a question on Amendment 30. New subsection (2A) states that:
	"'Relevant regulated qualifications' are regulated qualifications that are taken wholly or mainly by pupils at schools in England".
	I can see that that is a convenient shorthand for leaving out the International Baccalaureate and IGCSEs, but is she sure that this does not attack qualifications that she would like to see kept within the net? Where, for example, do British music qualifications fit into this? Are there individual GCSEs or A-levels that happen to be taken in larger proportions by overseas students? Is she sure that this paragraph hits the target she is aiming for and not anything else?

Viscount Eccles: While the Minister is considering those questions, perhaps I may go back to Amendment 22 and all that follows from it. I have a dim memory that this was formerly Clause 138 and that amendments were tabled from both these and the Liberal Democrat Benches seeking to bring the matter under some form of parliamentary procedure. We are grateful for the fact that we have the affirmative order, although is it not right that revocation and some of these amendments are subject to the negative procedure? However, that seems entirely in order.
	We all join in thanking the Ministers for the amendments because it is right to bring a matter as important as the minimum requirements within parliamentary procedure. This gives Parliament the opportunity for a full debate and, in some difficult circumstances, the right to ask the Government to think again.

Lord Bew: My Lords, as one of the Peers who has argued the case on what was Clause 138 at some length, I, too, express my gratitude to the Minister and to the Bill team for the many meetings and consultations that we have had. Although the solution that has been reached to this issue is not perfect from our point of view, it is, none the less, an acknowledgement of the fundamental point that has been made throughout the debate—that it is very important, insofar as it is possible, to defend the independence of Ofqual. We are grateful that a decision has been made which at least means, albeit in possibly controversial and difficult circumstances, that the Secretary of State for Education will have to defend before Parliament any controversial determination that is made.
	I again thank the Minister and her officials for their help to those of us on these Benches who have taken an interest in this question.

Baroness Verma: My Lords, we are grateful that the Minister has taken the concerns of my noble friend Lord Lucas on board and returned with Amendment 21, which would require the Secretary of State to publish any direction he gives to Ofqual. In the interests of transparency and accountability of this regulatory body, it is right for these directions to be published.
	We are grateful, once again, for the hard work the Ministers and the Bill team have put into listening and responding to our concerns. We raised our concerns about Amendments 22 to 29 and 37 to 40 on Report, and I shall not repeat all the arguments. We have made it clear that we on these Benches feel that it is necessary for the Secretary of State to have the power to issue minimum standards in respect of the skills, knowledge or understanding required to gain a particular qualification. We have also made it clear that we feel that Ofqual now falls short of the regulator that we would like to see. We have suffered in this country as, year on year, more complaints are made about the standards of education and examination. In 2008 the World Economic Forum, which measures how globally competitive a country is, placed the UK at 28th in terms of the quality of its education and 47th in terms of its maths and science.
	We have made our feelings quite clear on this subject. We believe that it is right and proper for the Secretary of State, who is elected by the public on the strength of promises made, to have the power to change the conditions and raise standards. In light of this, we cannot support the amendments tabled by the Minister, which mean that any determination made under Clause 140 must be issued by order and through the affirmative resolution procedure. We feel that the Secretary of State should be held accountable to Parliament for decisions he makes to implement policy. Ofqual should report to Parliament and directions given to Ofqual by the Secretary of State should be published. Nevertheless, we believe that the Secretary of State should reserve the power to determine minimum requirements. Elected politicians should be able to respond to the concerns of the public regarding declining standards and take action to raise the bar.
	We welcome Amendment 30, which makes it a requirement to include information about Ofqual's performance of its functions, the extent to which Ofqual has met its objectives and details about levels of attainment in some regulated qualifications. However, for the most part we remain disappointed by the amendments the Government have introduced to the clause, both on Report and now at Third Reading.

Baroness Morgan of Drefelin: My Lords, I hear what the noble Baroness, Lady Verma, has to say. We have worked hard to ensure that the concerns of the whole House have been addressed. The Bill will lead to a strong, independent regulator able to do the job that we are all looking for; that is, to ensure that standards in examinations and qualifications more generally are properly regulated and the public can have confidence that they are so.
	The noble Lord, Lord Lucas, asked about the scope of qualifications to be reported on. The power to which he referred is permissive. Ofqual can publish extra data if it wants. Similarly, the Select Committee can ask it to publish extra qualifications data if desired, even if they were strictly outside the scope of new subsection (2)(a). If the noble Lord requires further clarification, I shall be happy to write to him.
	The noble Baroness, Lady Walmsley, asked about the detail of the information in Ofqual's annual report. I am advised that Ofqual can go into that kind of detail if it wants to; it will be within its gift. Perhaps I may write to the noble Baroness on that, because I am sure that she would find it helpful to have a little more detail in response to her question.
	I note the comments of the noble Viscount, Lord Eccles. As a former member of the Merits Committee, I am pleased that he feels that we are getting the affirmative procedure right in this case. The noble Lord, Lord Bew, was very pragmatic in his analysis of where we have come to. We have been blessed by the contributions of the Cross Benches, and I am grateful to noble Lords for the time that they have given on this issue.
	The noble Baroness, Lady Walmsley, spoke about mission creep, but her analysis differs from mine. I genuinely hope that the work that has gone into developing Ofqual will result in a body that can do a job which this country needs so much: to ensure that young people who put the hard work into their exams get the recognition that they deserve. I am sure that that will be the case and hope that noble Lords will feel able to support the amendments.
	Amendment 21 agreed.
	Clause 140 : Power to determine minimum requirements
	Amendments 22 to 25
	 Moved by Baroness Morgan of Drefelin
	22: Clause 140, page 87, line 7, leave out "make a determination specifying" and insert "by order specify"
	23: Clause 140, page 87, line 10, leave out "a determination" and insert "an order"
	24: Clause 140, page 87, line 15, leave out from "if" to end of line 22 and insert "—
	(a) the qualification, or each qualification of the description, is one to which this Part applies, and
	(b) the condition in subsection (3A) is met in relation to the qualification or each qualification of the description.
	(3A) The condition is that—
	(a) one or more forms of the qualification is (or are) approved under section 98 of the Learning and Skills Act 2000, or
	(b) the Secretary of State reasonably expects approval under that section to be sought for one or more forms of the qualification."
	25: Clause 140, page 87, line 27, leave out subsection (5)
	Amendments 22 to 25 agreed.
	Clause 141 : Consultation before making determination of minimum requirements
	Amendment 26
	 Moved by Baroness Morgan of Drefelin
	26: Clause 141, page 87, line 33, leave out "a determination" and insert "an order"
	Amendment 26 agreed.
	Clause 142 : Effect of determination of minimum requirements
	Amendment 27
	 Moved by Baroness Morgan of Drefelin
	27: Clause 142, page 88, line 5, leave out "a determination under section 140(1) has" and insert "minimum requirements specified in an order under section 140(1) have"
	Amendment 27 agreed.
	Amendment 28
	 Moved by Baroness Morgan of Drefelin
	28: After Clause 142, insert the following new Clause—
	"Revocation and amendment of orders specifying minimum requirements
	(1) Subsection (2) applies if—
	(a) the Secretary of State has made an order under section 140(1) in respect of a qualification or description of qualification, and
	(b) the qualification or description of qualification ceases to be one to which section 140 applies.
	(2) The Secretary of State may by order—
	(a) revoke the order, or
	(b) amend it for the purpose of removing the qualification or description of qualification from the application of the order.
	(3) Subsections (1) and (2) do not affect the power of the Secretary of State to revoke or amend an order under section 140(1) in other circumstances.
	(4) Sections 140(2) and 141 do not apply to an order—
	(a) revoking an order under section 140(1), or
	(b) amending an order under section 140(1) for the purpose only of removing a qualification or description of qualification from the application of the order."
	Amendment 28 agreed.
	Clause 143 : Amendment and revocation of determination of minimum requirements
	Amendment 29
	 Moved by Baroness Morgan of Drefelin
	29: Clause 143, leave out Clause 143
	Amendment 29 agreed.
	Clause 170 : Annual and other reports
	Amendment 30
	 Moved by Baroness Morgan of Drefelin
	30: Clause 170, page 100, line 16, leave out from "must" to end of line 17 and insert "include—
	(a) a statement of what Ofqual has done in performing its functions in the reporting period;
	(b) an assessment of the extent to which Ofqual has met its objectives in that period;
	(c) details of any information obtained by Ofqual in that period on the levels of attainment in relevant regulated qualifications.
	(2A) "Relevant regulated qualifications" are regulated qualifications that are taken wholly or mainly by pupils at schools in England.
	(2B) An assessment under subsection (2)(b) in respect of the qualifications standards objective must in particular explain how, in making the assessment, Ofqual has taken account of any information within subsection (2)(c) obtained in the reporting period or an earlier reporting period."
	Amendment 30 agreed.
	Clause 194 : Targets for safeguarding and promoting the welfare of children
	Amendment 31
	 Moved by Baroness Morgan of Drefelin
	31: Clause 194, page 114, line 23, at end insert—
	"(1A) In section 66 of that Act (regulations and orders)—
	(a) in subsection (4) after "containing" insert "the first regulations under section 9A or";
	(b) in subsection (5)(a) for "to which subsection (3) does not apply" substitute "to which neither of subsections (3) and (4) applies"."

Baroness Morgan of Drefelin: My Lords, the amendment will make the first exercise of the regulation-making power on statutory safeguarding targets subject to the affirmative procedure. It follows my commitment to consider the amendment of, and points made by, the noble Baronesses, Lady Walmsley and Lady Verma, on Report, when I gained a strong sense from the House that it wanted a debate on the new safeguarding targets. As I outlined previously, we have embarked on an extensive programme of consultation on what the targets should cover, but I understand the House's desire for a full debate on statutory safeguarding targets and the use of the affirmative procedure. In future, it is right that the exercise of the power should be subject to a negative procedure. When the House has seen how the whole process has been gone through on the first occasion, noble Lords will probably feel comfortable about making an assessment of whether a prayer is required in future years. I hope noble Lords will feel able to support the amendment.

Baroness Walmsley: My Lords, I am most grateful to the Minister for accepting the idea that there should be affirmative resolution, which was in my Amendment 200 at the Report stage. It is right that Parliament has the opportunity to debate these targets, even though they will have been consulted on very widely with the professionals. Parliamentarians are very concerned about the issues surrounding the targets and it is right that their voice should be heard.
	During the debate in Parliament, I have no doubt that Members will want to explore the matter of the resources available. You have to will the means as well as the ends. It is terribly important that there are resources to fulfil these targets—financial, human and training resources—to ensure that a sufficient number of qualified people are there, with the right experience to be able to carry out the work, so that each local authority in the country can hit those targets. I hope that will then focus the Government's mind on the fact that Members of Parliament put the safeguarding of their children very high in the order of priorities. When that happens, I hope that the Treasury is listening.
	It is very unfortunate when local authorities feel that they have to choose between youth services and safeguarding children, as Northamptonshire had to do recently. Following a negative inspection, it countered that it had had a 43 per cent increase in the number of referrals for safeguarding issues in the past 12 months. That is very hard for any local authority to deal with. As a result, it has put an improvement plan into place, but to pay for that it has had to cut youth services, Connexions and a teenage pregnancy programme. That is not right. We have to make sure that the Treasury is clear about this and that Members of Parliament make it very clear when they make their speeches, when these targets come before them, that the Treasury needs to put the money in to will the means as well as the ends.

Baroness Verma: My Lords, we thank the Government for this amendment. We spoke warmly in support of these intentions on Report and very much welcome the fact that these regulations will be subject to affirmative procedure. I thank the Minister once again for her assiduous desire to achieve consensus on the parts of the Bill where that is achieved.

Viscount Eccles: My Lords, as a member of the Delegated Powers Committee, I ask for an assurance that the correspondence between the Government and that committee will be completed so that everything is in good order. Some of these changes may be made at the last minute.

Baroness Morgan of Drefelin: I know that I have cleared a letter that has gone in the direction of the committee. It is another letter that we have circulated. I agree with the noble Viscount that it is very important that the committees are properly informed and that we meet the deadlines on all these matters.
	Amendment 31 agreed.
	Clause 217 : Arrangements etc. to be made by Commission
	Amendment 32
	 Moved by Baroness Morgan of Drefelin
	32: Clause 217, page 133, line 20, at end insert—
	"(3) The information published under subsection (2)(b) must include details of assistance available to each of the following—
	(a) a pupil at a qualifying school (see section 205(6)(d)) who is, or has been, looked after by a local authority (within the meaning given by section 22(1) of the Children Act 1989);
	(b) a person who has a disability (within the meaning of section 1(1) of the Disability Discrimination Act 1995);
	(c) a person who has special educational needs (within the meaning of section 312 of the Education Act 1996)."

Baroness Morgan of Drefelin: I was about to attempt to move this formally, but that would have been most inappropriate.
	We now move to part of the Bill looking at the system of complaints in schools. I assure noble Lords that we intend to make the system that we are developing work efficiently and effectively for parents, children and young people, and it will be properly developed and rolled out through a phased approach. I assure noble Lords that the complaints commissioner will make information and guidance accessible to groups of vulnerable children, including those with special educational needs, those who are, or have been, looked after and those with disabilities.
	The DCSF and the local commissioner will of course work with our stakeholders during the testing phase, which we discussed on Report. The testing phase will be an important part of developing a practical and effective complaints service. We will be working with stakeholders during the testing phase with a view to ensuring that the needs of these groups of young people are properly met. Importantly, that will include looking at the effectiveness of the information and guidance that is provided.
	As I explained during our last debate on this important subject, we fully intend to test the need for advocacy during the phased roll-out. That means looking at the experiences of service users, particularly young people, to enable the department to gauge demand and the costs associated with that demand. It is essential that we look at any issues around access to advocacy for vulnerable groups of children and parents. With that in mind, we have tabled an amendment to the Bill which makes explicit that information about access to advocacy must be made available. It was a matter of great concern for noble Lords on Report, so I hope that the amendment will be acceptable. I beg to move.

Baroness Walmsley: I am most grateful to the Minister for listening yet again on this matter. I tabled amendments in Committee and on Report and she has come back with a government amendment. I have a couple of questions. The Bill introduces the general duty on the commission to publish information about the procedures for complaint. Will that information be in a format suitable for children and young people to be able to understand? The majority of the complaints are brought by parents. Under this system, children will be able to make complaints themselves. We welcome the Minister's assurance that information about advocacy will be available for the children in the particularly vulnerable categories that I highlighted earlier in our discussions. However, I want to make sure that all the information will be in a format that is accessible to children.
	Will the Minister also tell us when the duty to publish information will come into force? Will it come into force in the areas where the pilot schemes are being carried out at the beginning of those pilot schemes and then be rolled out across the country? Will she also say something about how the DCSF intends to monitor the implementation of the duty?
	Although I am grateful to the Minister for giving us this particular concession on advocacy, I am still somewhat sceptical about the complaints system that the Government are proposing. I hope that it does not result, as some fear, in the floodgates opening with a whole lot of complaints. Although the commissioner can dismiss them if they are obviously vexatious, they could still take a great deal of time to weed through. Of course, it would waste a lot of schools' time in producing evidence, even at the very early stages of a complaint that was later dismissed. We are trying to avoid wasting teaching time and unwarranted bureaucracy.
	It is important that, where pupils or parents have justified complaints, they are dealt with as quickly as possible at the school level, if that can be done. That is where the governors come in. The complaint can then go to the local authority if the school cannot settle it, although there may well be a need for a further stage so that children's rights can be adhered to. I look forward to seeing reports about how this system is working, to see if it is better than what we have at the moment.
	I assure the Minister that the number of children who will require advocacy will be quite small. We have only 2,200 complaints going to this sort of level each year, of which only a very small number will fall into the particularly vulnerable categories that have been the subject of my concerns. I do not think that the cost will be very high and I hope the Minister can assure me that the money will be available.

Baroness Verma: My Lords, we thank the Minister for this amendment. It is appropriate that, where the commission publishes any information relating to the procedures for making up a complaint, it should ensure that it specifically includes information relating to a child in care; a child no longer looked after by the local authority; a disabled child; and a child with special educational needs. These are all vulnerable groups, which may not be aware of their rights. It is hoped that, by making information available about what particular support there is, these groups may be helped to make the most effective use of the complaints procedure, should it prove necessary.
	We are grateful to the Minister for listening to our concerns, expressed during debates on these clauses, and for tabling this amendment. Amendment 32 does not fully address our concerns, as the Minister is aware. Nevertheless, we recognise that debate and scrutiny in this House have brought significant improvements and for this we are very grateful.

Baroness Morgan of Drefelin: I start by thanking the noble Baroness, Lady Verma, for her remarks. It has been helpful to have a very constructive discussion about the complaints process. We have made good progress through the passage of the Bill.
	The noble Baroness, Lady Walmsley, asked whether information would be made available in a format accessible to children and young people. Yes, it will be. Both the noble Baronesses, Lady Verma and Lady Walmsley, are well aware of the value of that and have advocated it in this House many times. I will write to the noble Baronesses about the detail of how the evaluation and the roll-out will work. In particular, I will need to get back to the noble Baroness about the commencement dates, because I do not have those in my notes. I absolutely agree with the noble Baroness that advocacy is extremely important. The ideal is that complaints and concerns are settled at a local level, in schools, before any issues can be escalated out of the school, either to the Secretary of State or through the new complaints system. Of course, getting a good complaints system working is a benefit to teachers, governors, parents, and children and young people, whose interests we aim to serve with this new scheme. I thank the noble Baronesses for their support and I hope we can see this amendment agreed.
	Amendment 32 agreed.
	Clause 245 : Recording and reporting the use of force in schools: England
	Amendment 33
	 Moved by Baroness Morgan of Drefelin
	33: Clause 245, page 152, line 12, leave out "or over)" and insert "or over or provision made under subsection (4A) applies)"

Baroness Morgan of Drefelin: My Lords, I apologise as noble Lords may be getting fed up of me popping up and down but this is my amendment. We have now reached the last group of amendments, which we debated late on Report. I am grateful to noble Lords opposite for our constructive discussions on this part of the Bill.
	We remain firmly of the view that, in the overwhelming majority of cases where there is a significant incident in which force is used on a child in a school, the parents should be informed. I think that all noble Lords around the House agree with that. I believe that is what parents would expect. However, on Report last week, I willingly accepted the argument that, in the very few cases where this requirement may result in significant harm to the child, this requirement to report to parents need not apply. We nevertheless think that in such cases the incident should not just stay within the school or college and that, where there is no parent to whom the incident can safely be reported because of concerns about how the parent might react, the obligation should instead be to report the incident to the local authority.
	In deciding whether reporting an incident to a parent would be likely to result in significant harm to the pupil, and what is meant by "significant harm", the member of staff responsible under the procedure for reporting the incident should have regard to any guidance. Because a decision not to report an incident to parents may be difficult, we anticipate that the guidance will require that the member of staff responsible should discuss this with the head teacher before any decision is made. I hope that this would be a rare event in a school, but I think that staff would naturally want to discuss such a matter with the head teacher. Teacher unions, local government and children's rights representatives have been advised of this amendment and we will want to consult them on the development of the guidance.
	I should have mentioned on an earlier group of amendments that we have laid minor and consequential amendments to Schedule 2. Amendments 43, 44 and 45 are minor, technical drafting amendments. I should have spoken to them when we discussed an earlier group of amendments. I have been passed a highlighted note telling me that it is very important that I mention this. I am a rule-governed person and therefore I have mentioned them.
	As this is possibly the last speech that I will make on the Bill, I want to say a few words of thanks. Noble Lords have made very generous remarks today and, on behalf of my noble friend Lord Young, I say a very big thank you to them for the way in which we have worked together to take this Bill through your Lordships' House. I particularly thank the Opposition Front Benches and the Cross-Bench liaison Peers for the very constructive way in which they have worked with the Government throughout what I can safely say has been a long process. I think that it has taken nearly six months. I thank the Opposition Benches and the Cross-Bench liaison Peers for their insightful contributions to debates on the Floor of the House and for the advice that I have received in our meetings.
	I pay tribute to all Back-Bench Peers who have contributed to these debates. I am grateful for the generosity they have shown in giving their time to attend meetings even during the recess. I also thank the Bill team and the officials at DCSF and BIS for their tireless efforts in drafting briefing and for supporting Ministers throughout the passage of a Bill that has at times been very technical and involved. As many noble Lords have remarked, it has not been the shortest or simplest of Bills. The Bill team is to be commended for its diligence and attention to the last, reminding me of minor and technical details.
	I do not know how often this happens, but I should also put on record my thanks to the opposition researchers in the offices of the Liberal Democrats and of the Official Opposition for their tremendous work in liaising with the Bill team. It has been a delight to work with them.
	Finally, with the leave of the House, I should take a moment to thank the noble Baroness, Lady Sharp of Guildford. A little birdie told me that the noble Baroness may well be scaling back her responsibilities on the Front Bench. I thank her for her huge contribution to the work of this House. She has been a Member of this House since 1998 and a spokesperson for her party from 2000. She is an amazingly hard-working, committed and knowledgeable advocate in the fields of education, science and technology, and we will miss her wise words from the Front Bench. I have greatly enjoyed debating with her, not just while I have been at DCSF but also when I was at the DES. I very much look forward to debating with the noble Baroness, Lady Garden, who I understand might be stepping forward to fill the shoes of the noble Baroness, Lady Sharp. I am sure that noble Lords will join me in paying tribute to her many achievements and contributions to the House over the past 10 years.
	I hope that, in speaking to this last group of amendments, I have not overstepped the mark by making these comments too soon. I hope that the noble Lord, Lord Hunt, who is to respond, will not feel in any way limited in his remarks because I have chosen to dwell for so long on my thank yous. I hope that noble Lords will support these amendments.

Baroness Walmsley: My Lords, I very much welcome the amendment, which was tabled as a result of one of my urgings. It is a step in the right direction, although I would have preferred it if the Government had accepted the amendment on Report which said that the matter should be down to the head teacher's discretion. The Government have responded to the case study which I suggested whereby a child might have been damaged if the Bill had remained as it was.
	It has to be said that it is now up to all the groups that will be consulted—including head teachers, teachers' unions and safeguarding groups—to step forward and fully engage with the consultation to make sure that we obtain the right guidance and to ensure that the term "significant force" is sensibly defined in it so that an unwarranted burden is not placed on schools. At the same time, children have the right for their parents to know that, where it is appropriate, they have been subjected to the use of force. I thank the Minister very much for that.
	I thank the Minister, her colleagues and the Bill team for all their co-operation, their listening and their very hard work. I also add my thanks to my noble colleague, my noble friend Lady Sharp of Guildford, who could not have been a more helpful mentor to me when I came into this House as a very green member of her team. She has been absolutely wonderful and I shall miss her on the Front Bench, although I am pleased to hear that she will still be around for me to go to for advice if I need to. I also welcome my noble friend Lady Garden of Frognal to the Front Bench.

Lord Hunt of Wirral: My Lords, we are, of course, dealing with Amendment 33. Like the noble Baroness, Lady Walmsley, I thank the Government for responding to the points made both in Committee and on Report. I strongly agree with the National Union of Teachers that such an amendment is necessary, as it will allow the exercise of the teacher's professional judgment. A straight statutory requirement to report directly to parents in every instance would, we all feel, have had untoward consequences. For example, a teacher might be aware of a particularly difficult situation in which a parent was likely to be violent with a child if informed of an incident at school where physical restraint had been the necessary and proportionate response. An unqualified statutory duty would mean that teachers had by law to report to that parent. Therefore, we welcome the Government's amendment. I confess that it does not go quite as far as we would like, but it at least gives more professional responsibility to the teacher. As the Minister knows, we on these Benches strongly feel that we have to express trust in our teachers. The Government have accepted that principle here, so we are delighted to welcome the amendment.
	I think that the noble Baroness gave the most generous tribute that I have ever heard from a Minister. It should not go unrecorded that we all very much appreciate her kind words. We pay tribute to her and to her noble friend for the way in which they have listened. I am not going down a mea culpa route, but I have to say that it is easy not to listen, whereas it is much more difficult not only to listen but to respond positively and constructively. That requires a whole range of abilities, which the noble Baroness has exhibited throughout the passage of the Bill.
	The Bill is an enormous piece of legislation, which many of us felt probably would not get through. But we have done it. As the noble Lord the Minister said earlier, it is a much improved Bill that we send to the other place. That is also a tribute to the team that has looked after the Bill. It is always difficult when two departments come together to maintain the impetus behind a Bill. Although we have had our criticisms, the Bill team has always responded. Many of us have had lots of meetings—indeed, we have been full of meetings in and around the Chamber—but it has been a pleasure for my noble friends and me to work with the noble Baroness the Minister.
	We have also had some tremendous contributions from other noble Lords. I single out my noble friends Lord Elton, Lady Perry, Lord Eccles, Lord Lucas and Lord Baker. Great contributions have been made from the Cross Benches, too. Perhaps I might just add that I am never quite sure of the appropriateness of the word "liaison". Before the Minister uses that word again, perhaps she could look up the definition in the Oxford English Dictionary, because—no, I will not go down that road.
	It has been a pleasure to work with noble Lords, particularly my noble friends Lady Verma and Lord De Mauley, who have provided great depth and quality to the debates, as a result of which substantial improvements have been made to the Bill. I, too, pay tribute to the noble Baroness, Lady Sharp of Guildford, who is a marvellous example of someone who feels deeply about many issues and spares no words in making us aware of that. On behalf of the researchers who work for the Opposition and the Liberal Democrats, I say that that was an unusual but much appreciated tribute that the noble Baroness made. So for the moment, all is goodwill and gratitude for all that the Minister has done. I hope that the other place will appreciate the way in which the Bill has been improved in a traditional way by the House.

Lord Elton: My Lords, I will make one more important acknowledgement that is not always made. I do not know how this was brought about, but from the Back Benches it appears that the noble Baroness has some influence among her senior colleagues on the Front Bench opposite, with the result that we had a very generous allocation of time in the early stages of the Bill, which made the amity and concord possible because we have not always been working under pressure of the sort that one has come to expect when major legislation is brought through. I am very grateful that this amount of time has been allowed and I hope that this may be done again in future.

Lord Ramsbotham: My Lords, as one of the "liaison" Cross-Benchers, I associate those of us involved in the Bill with all the remarks that have been made. In particular, I echo what the noble Lord, Lord Hunt, said. I have benefited hugely from the help of the researchers in the two offices, and I know that my colleagues feel the same. I am extremely glad that they have been mentioned, because too often it is left unsaid.
	The Bill has been an experience. I do not pretend that I am entirely happy with everything that is going forward, because we probably never are when we look at something that needs so much attention. However, the improvements that have been made are down to the fact that everyone has seemed to be working together rather than against each other on the Bill, which must be in the spirit of the House. In particular, one must thank the Minister and her Bill team for the way in which they have co-operated, listened and helped. It is a model of how these things should be done.

Baroness Howe of Idlicote: My Lords, I will add a tiny word about how pleased I am with these four amendments, which have hardly been mentioned. They have addressed very important points. As others have said, the teaching unions have made their position clear and strongly support this. The way in which we consider the well-being of the child is crucial, but equally important is the well-being of the staff, and saving them from vexatious and other forms of unnecessary criticism. There must be ways in which things that go wrong are notified, known about and put right. However, the amendments in this group are absolutely right and I am very much in favour of them.
	As someone who prefers to call themselves a Back-Bench rather than a "liaison" Cross-Bencher and who has taken part in debates on the Bill, I say that we have a star on our side in my noble friend Lord Ramsbotham. I hope that he will forgive me for saying that and is not blushing. I am also very sad that we are losing the noble Baroness, Lady Sharp. There are plenty of very able Members on the Lib Dem Benches who can take over, but perhaps not with her experience, which is still going on—she brings such experience and expertise, and I and many others have learnt a tremendous amount from her each time she has risen to speak. I shall miss her enormously and I am sure that many other noble Lords will, too.

Lord Lucas: My Lords, I approve of the amendments in this group, which are well judged. I will add three words to what my noble friend Lord Hunt said. The first is intended to comfort the noble Lord, Lord Ramsbotham. Even when one is on the Front Bench in government, one is not often entirely happy with the Bills that one is taking through. Secondly, I say, via the Front Bench opposite, that I have not come across such a helpful Bill team before—they have been an immense support to a lonely Back-Bencher. It is enormously appreciated, and they have even gone so far, in taking seriously my concerns and those of the Liberal Democrats over what was Clause 138, that they have upset my Front Bench, which has given me particular pleasure. Lastly, I, too, shall miss the noble Baroness, Lady Sharp.

Baroness Sharp of Guildford: My Lords, I thank all noble Lords who have paid tribute to my work in the House over the past 10 years as a Front-Bench spokesman on education. Ten years is long enough and it is about time that I took a Back-Bench seat. I shall remain interested in these issues and speak from the Back Benches on them. The model that I have in my head is that of the noble Baroness, Lady Perry, who was a Front-Bencher and now speaks with great authority from the Back Benches. If I can emulate her, I shall do so. I also add my thanks to the team of Ministers—the noble Baroness, Lady Morgan, and the noble Lord, Lord Young—and the Bill team. I have never before worked so closely with a ministerial team and we have succeeded in improving the Bill. It was a very messy Bill to start with and remains in some senses a messy Bill, but I hope that it is an improved Bill.

Lord Geddes: My Lords, as the noble Baroness, Lady Howe of Idlicote, has reminded the House, we have not yet reached the question of whether the Bill do now pass. We are considering Amendment 33.
	Amendment 33 agreed.
	Amendment 34
	 Moved by Baroness Morgan of Drefelin
	34: Clause 245, page 152, line 20, at end insert—
	"(4A) A procedure under subsection (1) must include provision to the effect—
	(a) that a person ("R") who would otherwise be required by the procedure to report an incident to a parent must not report it to that parent if it appears to R that doing so would be likely to result in significant harm to the pupil; and
	(b) that if it appears to R that there is no parent of the pupil to whom R could report the incident without that being likely to result in significant harm to the pupil, R must report the incident to the local authority (within the meaning of the Children Act 1989) within whose area the pupil is ordinarily resident.
	(4B) In deciding for the purposes of provision made under subsection (4A) whether reporting an incident to a parent would be likely to result in significant harm to the pupil, R must have regard to any guidance issued by the Secretary of State about the meaning of "significant harm" for those purposes."
	Amendment 34 agreed.
	Clause 246 : Recording and reporting the use of force in FE colleges: England
	Amendments 35 and 36
	 Moved by Baroness Morgan of Drefelin
	35: Clause 246, page 152, line 42, leave out "or over)" and insert "or over or provision made under subsection (4A) applies)"
	36: Clause 246, page 153, line 7, at end insert—
	"(4A) A procedure under subsection (1) must include provision to the effect—
	(a) that a person ("R") who would otherwise be required by the procedure to report an incident to a parent must not report it to that parent if it appears to R that doing so would be likely to result in significant harm to the student; and
	(b) that if it appears to R that there is no parent of the student to whom R could report the incident without that being likely to result in significant harm to the student, R must report the incident to the local authority (within the meaning of the Children Act 1989) within whose area the student is ordinarily resident.
	(4B) In deciding for the purposes of provision made under subsection (4A) whether reporting an incident to a parent would be likely to result in significant harm to the student, R must have regard to any guidance issued by the Secretary of State about the meaning of "significant harm" for those purposes."
	Amendments 35 and 36 agreed.
	Clause 261 : Orders and regulations
	Amendments 37 to 42
	 Moved by Baroness Morgan of Drefelin
	37: Clause 261, page 163, line 24, leave out "subsection (6)" and insert "subsections (6) to (6B)"
	38: Clause 261, page 163, line 30, at end insert—
	"(za) regulations under section 1(5);"
	39: Clause 261, page 163, line 33, at end insert—
	"(ca) an order under section 140(1);"
	40: Clause 261, page 163, line 37, at end insert—
	"(6A) Subsections (5) and (6) do not apply to a statutory instrument which contains only—
	(a) an order revoking an order under section 140(1), or
	(b) an order amending an order under section 140(1) for the purpose only of removing a qualification or description of qualification from the application of the order.
	(6B) A statutory instrument within subsection (6A) must be laid before Parliament."
	41: Clause 261, page 163, line 38, at beginning insert "Subject to subsection (7A),"
	42: Clause 261, page 163, line 41, at end insert—
	"(7A) A statutory instrument which contains (whether alone or with other provision) regulations under section 2(5) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the National Assembly for Wales."
	Amendments 37 to 42 agreed.
	Schedule 2 : LEA functions: minor and consequential amendments
	Amendments 43 to 45
	 Moved by Baroness Morgan of Drefelin
	43: Schedule 2, page 171, line 39, leave out ", 507B and 562H" and insert "and 507B"
	44: Schedule 2, page 171, line 41, leave out "section 18A" and insert "sections 18A and 562H"
	45: Schedule 2, page 171, line 42, leave out "that section" and insert "those sections"
	Amendments 43 to 45 agreed.
	Bill passed and returned to the Commons with amendments.

Fast-track Legislation: Constitution Committee Report

Copy of the Report Vol I
	Copy of the Report Vol II

Motion to Take Note

Moved By Lord Goodlad
	That this House takes note of the Report of the Constitution Committee on Fast-track Legislation: Constitutional Implications and Safeguards (15th Report, HL Paper 116).

Lord Goodlad: My Lords, this is a welcome opportunity to debate the 15th report of the current Session by your Lordships' Select Committee on the Constitution, which is entitled Fast-track Legislation: Constitutional Implications and Safeguards. I thank the Leader of the House for her role in arranging the debate, and for her presence this afternoon.
	The report of your Lordships' committee was published on 7 July and the Government response issued on 3 November—sadly, almost two months late. Consequently, it could not be considered at the most recent meeting of your Lordships' committee. The committee is disappointed at the lateness of the Government's response, but grateful for having received it.
	As noble Lords are aware, the committee reports to the House on, among other matters, constitutional aspects of the legislative process. In the report of July 2008 on the Criminal Evidence (Witness Anonymity) Bill, the committee noted that the Bill was the third in a short time in which the parliamentary passage had been expedited—Parliament's usual procedures set aside, circumvented and avoided—following similar treatment for the Northern Ireland (St Andrews Agreement) Bill in March 2007 and the Banking (Special Provisions) Bill in February 2008.
	The committee's decision to inquire into the constitutional issues that may arise where there is expedited passage of legislation through Parliament was animated by a wish to affirm the importance of the legislative process, to uphold it and, if possible, to improve it. Concerns about arcane parliamentary procedure were absent from our minds.
	During the course of the inquiry, the report of which we are now debating, the Northern Ireland Bill and Parliamentary Standards Bill were both fast-tracked. I recollect Tony Benn saying in the other place—I am sure that he will forgive me for paraphrasing his words, which I cannot recollect exactly—that when the Front Benches agree something in private, that is the time at which Parliament should be at its most vigilant.
	Surprisingly, little if any attention, either academic or parliamentary, has previously been addressed to the practice of fast-tracking legislation. The noble Baroness the Leader of the House has generously described your Lordships' committee's report as an invaluable stocktaking. The committee's decision to use the expression "fast-track legislation", rather than "emergency legislation", was carefully considered and the reasons rehearsed in paragraphs 10 to 12 of the report. There is a very clear distinction between legislation necessitated by an emergency and the truncation of Parliament's procedures in pursuit of fast-track legislation for other reasons, including the convenience of the Government.
	The committee is obliged to all who gave evidence. Both Houses of Parliament are responsible for the legislative process. Chris Bryant, the then Deputy Leader of the other place, was most generous in sharing his perceptions with us, as was the Clerk of the House of Commons in written evidence. The committee and, I believe, your Lordships owe particular gratitude to Professor Andrew Le Sueur of London University, who was the specialist adviser to the committee for the report and also the legal adviser to the committee from 2005 until a few months ago. His advice and wisdom have been invaluable.
	In paragraph 16 of the report before your Lordships, the committee has recommended five principles which in our view should be applied to the scrutiny of fast-track legislation: first, that effective parliamentary scrutiny is ensured; secondly, that the quality of legislation is maintained and improved; thirdly, that affected persons and bodies are allowed the opportunity to influence the legislative process; fourthly, that the legislation is a proportionate, justified and appropriate response to the matters which it seeks to address, and that constitutional rights and principles are not jeopardised; and, fifthly, that the transparency of policy-making within government and in the legislative process are maintained.
	The committee made a number of recommendations, of which I shall very briefly remind your Lordships. The committee's view was that fast-tracking should occur only in exceptional circumstances. Our principal recommendations are contained in Chapter 6 of the report and are as follows. First, where fast-tracking is proposed, a Minister should make an Oral Statement to your Lordships' House outlining the reasons for the proposed fast-tracking and the reasons should be included in the written Explanatory Notes to the Bill. The reasons given for fast-tracking should be distinct from those for the policy pursued in the Bill. The Statement, which should be debated by your Lordships' House, should explain the Government's reason for proposing fast-tracking, what efforts have been made to allow the maximum time for parliamentary scrutiny, how stakeholders have been given the opportunity to influence the policies proposed, whether the Bill includes a sunset clause, whether post-legislative scrutiny is guaranteed, whether an assessment has been made of whether existing legislation covers the issues addressed by the Bill, and whether the relevant parliamentary committees in both Houses have been given the opportunity to scrutinise the legislation.
	Your Lordships' committee recommends that the Government should provide for the pre-legislative scrutiny of fast-track legislation by consulting the relevant parliamentary committees and stakeholders prior to the first Second Reading of the Bill, in whichever House it occurs. We further recommend that there should be a presumption that fast-track legislation will receive early post-legislative scrutiny and be subject to a sunset clause, the terms of which should be explained in the ministerial Statement to this House.
	Noble Lords are aware that our Standing Order 47, which precludes more than one stage of a Bill being considered on one day, can be debated and voted on in the event of the Government seeking to suspend the order. The committee recommends that if the principles and recommendations enunciated in the report which I have summarised are not met, your Lordships should decline to support a Motion to suspend Standing Order 47.
	It is my belief, and I think that of most of your Lordships, that very few people in this country want what the late Lord Hailsham called "an elective dictatorship". I hope that the noble Baroness the Leader of the House will be able to tell your Lordships that the Government accept the committee's recommendations. I beg to move.

Lord Rowlands: My Lords, it is a great pleasure to follow the noble Lord, Lord Goodlad. It has also been my pleasure to serve on the committee. As my time on it will come to an end at the end of this Session, I particularly thank the noble Lord for the pleasure of serving under him as chairman. I am also grateful to have had the parliamentary pleasure of being on the committee: it has done great work in servicing the House and in advising it on Bills in particular but also, of course, on general issues such as this.
	I, like, I suppose, everyone else in the House, was brought up on the basic principle that the parliamentary scrutiny of legislation was fundamental to Parliament's purpose and task. It was a parliamentary duty. Indeed, Locke, the great late-17th/early- 18th century political philosopher, called it a sacred duty. Blackstone, the 18th century constitutionalist who usually went over the top, described Parliament as a sovereign and uncontrollable authority in making, confirming, enlarging, restraining, repealing, reviving and expounding laws, concerning matters of all possible denominations, it being,
	"the place where that absolute, despotic power ... is entrusted by the constitution of these kingdoms".
	I think that that is rather over the top. In fact, during the hours and hours that I spent sitting on Benches in the other place trying both to participate in the legislative process and to listen to it, I never felt that absolute despotic power coursing through my veins, nor did I ever feel that Governments were quaking at the threat of such a despotic power. Nevertheless, throughout my parliamentary career I sensed that Governments did feel, and Parliament managed to convey to Governments, that they had to work for their legislation. They had to spend time getting the Bills through. They had to sweat for their legislation, if need be. That was the unspoken convention: you had to work your time and justify at some length and even through parliamentary attrition the case for a Bill.
	It was amazing to come to this place and find that that spirit is still very much alive and that my noble friends on the Front Bench have indeed to work hard and sweat to get Bills through. We have just passed a Bill of 262 clauses and 16 schedules, carried through the House by Ministers with scrutiny from all sides of the House, unregulated, uncontrolled by any form of parliamentary restriction or timetable.
	It is true that in the other place, since the 1880s, Governments have had the power to apply to limit or curtail the parliamentary proceedings on legislation through the guillotine. Even then, if one looks at the record of that guillotine procedure, one sees that it was traditionally used very sparingly. I was astonished to find, for example, that in the whole of the great Parliament of 1945 to 1950, which passed some of the most radical legislation through the House of any time, only three Bills were guillotined. Throughout the 1950s and early 1960s, the average would be one or two Bills a Session. In my first Parliament in 1966-70, the proceedings on only five Bills were curtailed by guillotine.
	In the 1970s and 1980s, Governments resorted more and more to the guillotine procedure, but even then I sensed—others in the House may testify to this—that there was an unwritten convention that Ministers had to do time before they could come to the House to get the guillotine procedure. They had to do time in Committee. I think that the going rate was about 80 hours a Bill in Committee. It was only then that you could honourably ask the House for a guillotine.
	So there has been a great deal of self-restraint even when, as in the other place, the House had power to limit debate. Now, everything has been changed by the introduction of programme Motions, which are newfangled things as far as I am concerned, because I was not in the House when they were introduced properly. Nevertheless, there has been a long-standing tradition of genuine acceptance of the fact that there must be constraint—even though Governments obviously had the right to get their legislation through, they had to do it with considerable care and had to work to achieve it.
	I therefore think that fast-tracking is of particular concern to this House because, whereas there is no guillotine procedure on Bills in this House, when the Government seek to fast track, they can fast track in both Houses, although, as our report demonstrates, there were cases when Bills were fast tracked in the other House but not here. The infamous Dangerous Dogs Act was a case in point. Nevertheless, the Government have power through fast-tracking to constrain debates and scrutiny of legislation in this House. Therefore, this House should be particularly squeamish and vigilant in deciding how or when it should approve such a process. A compelling case must be made for fast-tracking in this House, given our history of refusing to have limitations on our legislative processes and debates.
	That is why central and key to the committee's recommendations is that the case for fast-tracking must be scrutinised by this House—not the Bill itself, but the case for fast-tracking. As the noble Lord, Lord Goodlad, spelt out, our central proposal and the key to the report is that an Oral Statement be made when the Bill is introduced—not at Second Reading, but when the Bill is introduced—spelling out the Government's case for such action being taken. It is fundamental to our proposals that the Government can be scrutinised on the case for fast-tracking. We state that we do not believe that it should be part of any Second Reading debate. Traditionally, Ministers have made the case during a Second Reading speech, but we think that that should be separated from the case for fast-tracking itself. An Oral Statement of the kind mentioned by the noble Lord is central to our report.
	The eight tests in paragraph 186—the noble Lord, Lord Goodlad, spelt them out, so I do not need to repeat them—should be the litmus test by which the House can judge whether the Government have made the case for fast-tracking. As that is central to our recommendations, I ask my noble friend to clarify the Government's response to it. The Government's response states:
	"The Government firmly believes that all members of both Houses are entitled to a full explanation of why a piece of legislation is being proposed for fast-tracking, and we would expect to be held to account for its timetabling. Ministers remain prepared to justify the need for any expedition to the House, including covering those issues set out in the Committee's Report".
	Does my noble friend accept what we are asking from the Government: the acceptance of the principle of a procedure by which an Oral Statement is made before the House at the time of First Reading? The Government's response states that we are entitled to a full explanation. How will that explanation be delivered? Our recommendation that that explanation is delivered by an Oral Statement is central to our report. We hope that the Government will respond positively.
	Most of the Government's responses are positive and sympathetic to our report, but I should like my noble friend to clarify that. What is the means by which a full explanation will be given for why a Bill is proposed for fast-tracking? How will that be brought to this House? Does she accept, as I dearly hope she will, that it should be in the form of the Statement that our committee recommends?
	I briefly comment on Northern Ireland, on which we dwelt for some time, and, in particular, on the Bill that came before the House when we were dealing with the issue, which did not have all-party support and where Front Benches, especially those representing Northern Ireland, did not accept or agree to it. I think that the phrase was used by Kate Hoey in the other place: now there is normalcy in Northern Ireland, can we have legislative normalcy too? Can my noble friend confirm that it is the fervent desire of the Government that now there is normalcy, there will be normalcy in the legislative process when Bills concerning Northern Ireland are brought before the House?
	Finally, I turn to post-legislative scrutiny. It came as a great surprise to us that, despite hearing from all our special witnesses, almost no work or research has been done on the effectiveness, workability and quality of fast-track legislation. We looked at one or two examples, but we did not have the opportunity or the capacity to decide whether fast-track legislation is producing good legislation or whether it is, as many witnesses said but could not confirm, producing potentially bad legislation—unworkable or redundant legislation. We could not find that out. Therefore, one of our strongest recommendations is that there be post-legislative scrutiny of Bills passed by the fast-tracking process, so that from now on, we—the House and Parliament—can, when we agree to a fast-track piece of legislation, track whether it subsequently does what it was claimed it was going to do and proves to be effective, or whether the haste of pushing it through has meant that defects and difficulties arise. Can my noble friend confirm that, as the Government's reply suggests, they are in favour of scrutiny after one year or two years? The principle that all fast-track legislation should be the subject of post-legislative scrutiny is extremely important.
	I believe in the safeguards that this report offers on fast-track legislation. In the circumstances we know there will be in future, when Governments will seek the power to fast-track legislation, if we have safeguards of this kind, at least we will know that we will still be able to fulfil the sacred duty of effectively scrutinising legislation.

Lord Lyell of Markyate: My Lords, I am very happy to follow the noble Lord, Lord Rowlands, and agree with his last point. I thank my noble friend Lord Goodlad for his outstanding exposition of what our committee has been setting out and for the clear principles that he has laid down.
	I have an awful feeling that I am expressing pious hopes. We have been here before. Fast-track legislation in one form or another has found its place more often in recent years, and I do not talk about just the past 12 years. There was a certain amount of it in the years before, and there is no profit in going tit-for-tat about in which years there was more. However, we have to be extremely careful about it.
	It is ironic that in the middle of our inquiry, there were two pieces of fast-tracked legislation. One was the Northern Ireland Bill 2009, for which one had some sympathy, as there has been continuing difficulty in the unfolding of the peace process. Like the Leader of the House, I hope that it is the last piece in the jigsaw and that, as the noble Lord, Lord Rowlands, said, normality may be reintroduced to the Northern Ireland legislative process. However, I was worried about the Parliamentary Standards Bill. My noble friend Lord Goodlad put his finger on it when he quoted Tony Benn saying that when the Front Benches agree, one should be particularly vigilant. In the Parliamentary Standards Bill—about which I made some suggestions that did not altogether find favour, but which received a good deal of sympathy in some areas of the House—we stood parliamentary procedure on its head. It was almost like Alice in Wonderland, or perhaps it is Through the Looking-Glass, where there is execution first and trial and verdict later.
	We rushed through the legislation, and one can understand the political—or perhaps the press—pressures that caused that, but when the process had gone through both Houses of Parliament in a few weeks, we moved to a position where Sir Christopher Kelly took some months—he has been fairly quick—and it now passes to the Independent Parliamentary Standards Authority and Sir Ian Kennedy. We are told that this further process with, quite rightly, consultation and so on will take many more months and will probably carry us through the election. The right way round was for us to have deliberated longer and more carefully because for all the obloquy and opprobrium that Parliament has partly brought upon itself and partly had heaped upon it, Members of both Houses know a great deal about this problem, and it is right that they should have had an opportunity to express their views and have them taken into account. One hopes that they will be taken into account in the consultation process, but that is not the same as the scrutiny that can be provided in the Chamber of this House and in the other place.
	Fast-track legislation is not unique in raising problems. There has been a growing problem in all legislation in recent times. I go back, but I think it has been a growing problem in the past 10, 12 or 15 years; certainly the past 10 or 12, but I hope that is not too party-political. One has seen that in the other place many Bills have been significantly truncated. There just has not been time, particularly for their Report stages to be properly completed. Bills have come to this House with quite large portions that have not been properly debated on Report. I am full of admiration for the scrutiny of noble Lords, and this House has managed to repair a good deal. There are some wonderful examples, such as the Bill that has just passed, where there has been a constructive process.
	I am a little cautious about post-legislative scrutiny. The points made about it on fast-track Bills are well made. I sat on the rather hasty pre-legislative scrutiny of the bribery Bill that will, no doubt, come before this House in the next Session, although I wonder whether it will have time to get through. Although there are some advantages to pre-legislative scrutiny and post-legislative scrutiny, the key point is legislative scrutiny in Committee, whether on the Floor of the House or in a committee room, on Report and at each stage of each Bill. Legislative scrutiny, when the whole House brings its mind to bear, is the real constitutional safeguard. I hope that that will always be kept in mind.
	Finally, I strongly support there being a presumption that fast-track Bills should have sunset clauses. No doubt the Minister will say a word or two about this. The Government were cautious in their response about this and seemed to say that it should be decided on a case-by-case basis, but I hope that she will be able to go a bit further and say that the normal presumption will be to have a sunset clause unless there is a powerful reason not to have one.

Lord Morris of Aberavon: My Lords, my term of service on the Constitution Committee is also coming to an end. I have found it exceedingly challenging and have enjoyed it enormously. I, too, want to thank the noble Lord, Lord Goodlad, for his splendid chairmanship, from start to finish. As a Member of the Committee, I obviously welcome the inquiry into the procedure on fast-track legislation, as I was a party to it. With regard to this investigation and others, I would also like to thank our legal adviser Professor Le Sueur. We could not have been better served. I believe our report is a measured report that has elicited a measured response from the Government. I thank the Government and the Leader of the House for that.
	We tried to examine our practice and procedures on fast-tracking. As parliamentarians, we are all wary of fast-tracking, of not carrying out the usual scrutiny of any legislation. I shall give one example of why I am wary from my experience in the only piece of fast-tracked legislation in which I was involved. It was the Criminal Justice (Terrorism and Conspiracy) Act 1998, which followed the appalling tragedy in Omagh. The driving force was that something had to be done and had to be seen to be done. That syndrome is behind so much fast-track legislation and was not unique to that Bill. Let me remind the House that we were all summoned back in the middle of August. I attended the Cabinet Committee, which had also been hastily summoned, to consider the Bill that we would shortly put before the House.
	Two questions arise about the Bill. The first question relates to the amount of time that Parliament had to consider it. The House of Commons sat right through the night. I sat next to the Home Secretary, and we heard every point being raised and every point being admirably replied to. However, considering a Bill on a very warm night in August, with just two days to go through the whole of it, certainly had its disadvantages, to put it mildly. The second question is more important; it concerned the time that the Government had, since it was felt that something had to be seen to be done, to prepare a sensible Bill. Much of the material, thank God, must have been on the stocks beforehand.
	I became aware in the course of the Commons' deliberations that there was something wrong about a principle whereby a person could be convicted of being a member of a proscribed organisation on the word of a senior police officer. I cannot recall whether that point was actually debated. It probably was not—there was no time in those two days to consult more widely—but it soon became apparent to me in later conversations with those who were responsible for the law in Northern Ireland that it was extremely unlikely that that provision would ever be used.
	I was the Attorney-General both for Northern Ireland and for England and Wales at the time. In any conversation that I had after the Bill had been passed, judges and others made it clear to me that if the opinion was tendered before a jury, or in those days more likely a Diplock court, the judge—any judge—would ask whether there was any supporting evidence. Because of the obvious difficulty of disclosing intelligence, that additional supporting evidence could not be given. As a result, this provision has never been used. It has been considered for use, but no prosecutor in Northern Ireland ever brought a case before a court on this evidence. No harm was done, but it is an example of rushed legislation and, in the event, of ineffective legislation that cannot be used. Those are the inherent and obvious dangers. Those are my views of what I was involved in. I know what happened, and I wish in retrospect that I had thought about this point in the few hours that we had to consider the Bill and to explain it to the House.
	The other point that I wanted to make has already been made by the noble Lords, Lord Goodlad and Lord Rowlands. As they said, the report's key recommendation is that the Minister responsible for a Bill should be required to make an oral Statement to this House outlining the case for fast-tracking. We recommend that the details of that Statement should also be set out in a Written Statement included in the Explanatory Memorandum. The parliamentary time allocated for the Statement should in no way impinge on the time available for considering it. We recommend a standalone Statement. That is fundamental to our conclusions.
	We set out eight principles, which I will not go over—a shopping list which it should be the Minister's task to ensure is included in the justification for the Bill. We recommended that if the House judged that any of the principles had not been met, it should not support a Motion to suspend Standing Order 47 in the limited circumstances in which it applies.
	The Government—I thank them most sincerely for this—seem to accept our views in principle. The noble Lord, Lord Rowlands, has asked some very important questions, and I am sure that the Minister will want to face the challenge that he has set. The Government say in their response:
	"Ministers remain prepared to justify the need for any expedition to the House, including covering those issues set out in the Committee's Report".
	That obviously means the eight principles that we advocate, and I welcome that. However, the Government have not responded to the point probed by the noble Lord, Lord Rowlands, that not only should there be a standalone oral Statement but that Statement should be endorsed and included in the Explanatory Memorandum to the Bill. Will the Minister confirm that there will be both an oral Statement that stands alone and a Written Statement so that the House can, in a very short time, consider the implications of the Government's case?
	There will always be a temptation for any Government to try to stem public outcries, and there will always be a need, as I have said earlier, to be seen to be doing something. There is no definition of fast-tracking. Indeed, I quickly realised that it would be a complete waste of time to try to find one. The Government are the best judges of need. They know all the circumstances and, having assessed the need for fast-tracking, it is their responsibility, and only theirs, to reach that view. Having done so, they must carry the Opposition. Without the support of the Opposition, the whole process would stumble, fail or stall. Those two requirements are absolutely essential, which is why it is important that we do not embark on this course too lightly, too often or too speedily.
	In general, the Government's response is to be welcomed, but our report highlights the need for restraint. Such legislation, particularly in the case of Northern Ireland where it had become a habit—for very good political reasons, I hasten to add—should be an exceptional approach. I very much enjoyed hearing the evidence. Even if we could not come up with a definition of what we were talking about, we all knew exactly what we were dealing with, and I believe that our report will be helpful in the future. I very much hope that the Government can fill in the two details which the noble Lord, Lord Rowlands, and I have stressed.

Lord Norton of Louth: My Lords, I, too, congratulate my noble friend Lord Goodlad on securing this debate and on the way in which he has presented the Constitution Committee's report. I also pay tribute to the way in which he has led the committee, not least in producing this important report.
	Scrutinising government legislation is a key task of Parliament and arguably the principal task—it is certainly the most time-consuming task—of this House. Where government seek to expedite the passage of legislation, setting aside the normal rules of each House, the need for vigilance is acute. As we have heard, all Governments have sought to expedite, or fast-track, legislation. Despite the extent of fast-tracking, what is remarkable is the lack of serious studies of that experience. The committee's report is therefore valuable for the material that it makes available.
	As the report makes clear, the reasons for expediting the passage of legislation are varied. The need to fast-track a particular measure is sometimes clear, but needs differ and, as the report details, there was no agreement among the witnesses as to the circumstances in which it is considered constitutionally acceptable to fast-track legislation. However, as my noble friend Lord Goodlad has detailed, the committee was able to identify five constitutional principles that should underpin the consideration of fast-track legislation. These formed the basis of the committee's review.
	As a member of the committee, I fully endorse the recommendations. The case for them is, I believe, carefully made in the report. In the time available, I want to comment on the Government's response to the report, their response to the committee's report on a fast-tracked Bill, the Parliamentary Standards Bill, and to add a recommendation of my own to those put forward by the committee.
	I start with the Government's response, which welcomes the report and endorses the need for self-restraint by the Government, but it carefully avoids accepting any change that goes beyond the Government exercising self-restraint. There is no acceptance of any proposal that would constitute a permanent and embedded change from existing practice, certainly not one that imposes an obligation on the Government.
	Let us consider late amendments. Late amendments to Bills can constitute a form of fast-tracking legislation. We are told that the Government.
	"will continue to pursue efforts to limit the number of late amendments tabled that do not fall into this category".
	That is, concessions to points raised earlier in proceedings. This is not encouraging, since it is based on the premise that the Government already pursue efforts to limit the number of late amendments. All we are offered is a continuation of present practice. Given the number of late amendments that continue to be tabled, it is not something from which we can take encouragement.
	That is fairly typical of the response, which either commits to continue what the Government already do, based on the presumption that they are exercising self-restraint, or adopts a technique of avoiding the committee's recommendation. This latter approach is employed in respect of the recommendation that there should be a presumption in favour of sunset clauses. The committee recognises that there will be cases where such clauses cannot be employed. The Government respond by stating:
	"Whilst on occasion a sunset or renewal clause is deemed necessary, the Government believes this must be approached on a case-by-case basis. The uniform inclusion of a sunset clause also has the potential to force Parliament to legislate to a timescale that may not be appropriate to the issues involved".
	The Government offer no explanation as to why there should not be a presumption in favour of a sunset clause. Their dismissal of a,
	"uniform inclusion of a sunset clause"
	is irrelevant, as the committee made no recommendation of a uniform inclusion. The case for the presumption of a sunset clause is made clearly and cogently in the committee's report, but the Government make no attempt to engage with it.
	A similar technique is employed in response to the recommendation on post-legislative scrutiny. As we have already heard, the committee recommends that there should be a presumption in favour of an early review of fast-track legislation; that is, within one or possibly two years. The Government state:
	"In many cases the full implications of an Act will not be understood one year after Royal Assent".
	They do not say that in most cases the full implications will not be known, which is what they would have to argue in order to dismiss the recommendation for the presumption in favour of early review. Furthermore, the only example the Government offer, the Parliamentary Standards Act, is not the most compelling. Even if there is not a formal review of the measure within two years, I suspect that there will be several informal reviews of its effect. Indeed, it is not beyond the bounds of possibility that we will see an amending Act within that period.
	The Government's response thus falls short. It does not engage directly with the committee's recommendations. It is based on the premise that the Government already exercise some degree of self-restraint and seem content to let things continue as they are. For the reasons set out in the committee's report, that is not a sustainable position.
	If the Government's response to this report falls short, so too does the Government's response to the most recent report of the committee on legislation that was fast-tracked; that is, the Parliamentary Standards Bill. The letter from the Justice Secretary in response to the committee's 17th and 18th reports of this Session illustrates why the present position is untenable. The committee criticised the Government's approach to fast-tracking the Bill, arguing that this was not the most appropriate way to legislate on matters which raise complex constitutional and legal issues and that, because of the timescale, there was a lack of public consultation and limited opportunities for parliamentary scrutiny. Mr Straw writes:
	"This assessment does not fully take account of the imperatives of the situation we all faced".
	Another way of describing the "imperatives of the situation" is to be found in paragraphs 47 to 49 of the committee's report on fast-tracking. It is known as the "something must be done" syndrome. The noble and learned Lord, Lord Morris of Aberavon, has already referred to it. The committee quotes Sir John Chilcot who, in his evidence, recounted the experience of Lord Jenkins of Hillhead, who, reflecting on his career,
	"said that the best headline he ever had ... was simply 'Jenkins acts'. It did not say what he had done or why or to what effect, but that he acted. That in his judgment—and he was not entirely flippant—was part of the purpose of things politically".
	In response to the crisis over Members' expenses, the Government had to be seen to act. Indeed, the Leader of the House justified the Parliamentary Standards Bill on the grounds that:
	"The public want action and they want it now".—[Official Report, 8/7/09; col. 752.]
	Lord Jenkins would have recognised the approach. Time was claimed to be of the essence. Although the Bill ended up being less bad than it was on introduction, thanks in very large measure to the work of the Constitution Committee, I am not persuaded that the "imperatives of the situation" justified laying aside our normal procedure. I concur with my noble and learned friend Lord Lyell. Current events suggest that it may have been better to have avoided rushing the measure through.
	Given the deficiencies of the Government's responses, I invite the Minister, as several other noble Lords have done already, to revisit what the committee has said, not least its recommendation at paragraph 184; that is, that a Minister should be required, at the time that the Bill is introduced, to make an Oral Statement to the House outlining the case for fast-tracking and addressing the questions listed in paragraph 186. That will ensure that the Government address the case for fast-tracking and on a consistent basis. It will impose a useful, I would suggest a necessary, discipline. It will be helpful if the Minister in replying to the debate places on record the Government's commitment that such a statement will accompany each Bill that is fast-tracked.
	I conclude with an additional recommendation, one that is not embodied in the committee's report. The committee notes that it is open to any Member to seek the opinion of the House when the Motion to suspend Standing Order 47 is moved. As the Government point out in their response, the standing order is suspended only where the timetable would require two stages to be taken in one day. There is clearly an issue where the Government seek to reduce the usual gap between the stages of a Bill, but without taking two stages in a single day. Notice has to be given, but no suspension of Standing Orders is involved. It is possible to move an amendment to a committal Motion, as I did on the Parliamentary Standards Bill, in order to provide that the usual gap between stages be maintained, but as the Leader of the House said on that occasion,
	"we are in unusual territory".—[Official Report, 8/7/09; col. 752.]
	I suggest that it ceases to be unusual territory. I believe there is a case for embodying in Standing Orders the gap between stages. That would mean that the Government would have to move a Motion to suspend the Standing Order in order to condense the stages. It would thus be open to any Member to object. The onus would thus be on Government to make a case for shortening the process, rather than on a Member to bring forward a Motion, or rather an amendment, to make the case for maintaining the usual gap between stages.
	We could go one step further and learn from the procedure in the other place in respect of closure Motions. For a closure Motion to be carried, there must not only be a majority in favour of the Motion, but at least 100 Members voting "aye". We could impose a similar provision, a stipulated number who must vote "content", for any Motion to suspend Standing Orders. That would ensure that the suspension of a Standing Order enjoyed clear and strong support in the House.
	We take our responsibility to scrutinise legislation seriously. We commit considerable time and resources to it. It is imperative that all legislation is subject to rigorous scrutiny, even if there is a case for expediting its passage. We need to assure ourselves that the case for fast-tracking legislation is clearly made and that we have mechanisms in place to ensure such scrutiny. Without such procedures being embedded, we run the danger of being carried along with the "something must be done" mentality. Simply saying that we should look at fast-tracked Bills on a case-by-case basis is not sufficient. We need to be vigilant and we need procedures in place to ensure that we are.

Lord Parekh: My Lords, like noble Lords before me, I too begin by thanking the noble Lord, Lord Goodlad, for chairing the committee and introducing the report with the clarity that one has come to expect of him. I feel slightly strange in that I seem to be the only person who is not a member of the committee to be speaking in the debate. On one level I feel like an intruder, while on the other I feel that I have a greater responsibility to speak because we have been talking about the scrutiny of legislation, and therefore someone who is not a member has a greater responsibility to scrutinise the report. I shall not do that in detail except to make one point.
	The report sets out the basic issues with great clarity and I am persuaded by many of the arguments made in support of them, but I am a little surprised that when it discusses legislative bodies outside the UK, it concentrates primarily on Canada, Australia and New Zealand. I would have liked some information on how the United States and our partners in the European Union handle this issue. No doubt their legislative systems are different from ours in ways that those of Canada, Australia and New Zealand are not, but that is precisely their attraction, and we might be able to learn something from their experience. Even if we were to limit ourselves to those countries whose legislative systems are similar to ours, I would have liked further information on how countries like India and South Africa deal with issues of this kind. If a similar occasion arises again, I might be able to offer some ideas based on the experiences of those countries, particularly on how to reconcile the conflicting principles of close legislative scrutiny and the need for fast-track legislation.
	We all agree that situations may arise when fast-track legislation becomes necessary. But while it may be necessary, it is also open to obvious dangers. The legislation is likely to be badly drafted and technically poor. It is also likely to invest government with powers the legacy of which might take years to overcome. The German scare of 1911 led to the Official Secrets Act. It was passed in a day and has taken decades to set right. Fast-track legislation is also open to another danger. It is a constant temptation to government to push things that are likely to curry favour with the electorate but which might prove in the long run to be damaging to our interests and honour. I am reminded particularly of the Commonwealth Immigrants Act 1968. It was passed with incredible, and as some newspapers said, indecent haste because a large number of east African Asians who were holders of British passports were beginning to come to this country. The legislation said that even though they held British passports, they were not to be allowed to enter. It tarnished Britain's name for years, which was held to be the only country that refused to honour its own passport, and it was five years before the European Court of Human Rights was able to declare that the Act had violated human rights, but in the mean time thousands of east African Asians had suffered.
	The further danger of fast-track legislation is that it encourages political lobbies to whip up a public outcry in order to get things done that otherwise might not be done. Fast-track legislation also often has a knock-on effect on the rest of the legislative programme, either by delaying it or by causing it to be subject to less rigorous scrutiny. The record of fast-track legislation is rather mixed, with more on the negative than on the positive side. I shall not talk about the well known Dangerous Dogs Act 1991, but I have already given the example of the Commonwealth Immigrants Act, the Child Support Act 1991 and, more recently, the Parliamentary Standards Bill, which was hastily drafted and could have been much worse if the Government had not generously agreed to many important changes.
	Given the fact that fast-track legislation is necessary but also that it is open to obvious dangers, we need ways in which to regulate such legislation. How? Broadly I agree with what is set out in the report, but I want to make four or five important points. First, it is important that fast-track legislation should be a measure of last resort. It must be intended to come into effect immediately upon enactment, otherwise the point of it is lost. Secondly, it must be concerned only with situations that demand immediate action, and it should not be used to smuggle in measures that the Government would like to see introduced but are not really relevant to the matter in hand. Thirdly, as my noble friend Lord Rowlands and my noble and learned friend Lord Morris of Aberavon have said, the Minister responsible should make an oral Statement explaining why the fast-track legislation is necessary. The contents of that Statement should also be set out in a written memorandum to be included in the Explanatory Notes.
	Fourthly, the Bill should be subjected to as much pre-legislative scrutiny as possible. Although it is fast-track legislation and therefore the amount of scrutiny will always be limited, we recognise that every Bill has to have the approval of the Joint Committee on Human Rights to show that it does not conflict with the Human Rights Act. This means that there is always time for some form of pre-legislative scrutiny, and therefore I cannot understand why even the fastest of fast-track legislation should not be subjected to pre-legislative scrutiny.
	I have mixed views about sunset clauses and I think that the Government are right to argue that, rather than make them a point of general principle, they are best dealt with on a case-by-case basis. This is what happens in some of the countries with which I am familiar. But there is a great deal to be said for post-legislative scrutiny. When an Act has been passed in the fastest possible manner, there is always the danger that it will set a precedent, and that precedent may become the reason for introducing other forms of bad law. After the emergency has passed, there must be a way in which we can step back and review whether the law was necessary and should be continued. Therefore some form of post-legislative scrutiny is necessary so that we can decide after a reasonable length of time whether it should be renewed, continued or repealed.

Lord Shaw of Northstead: My Lords, as the noble Lord, Lord Parekh, has just said, we must all accept that from time to time circumstances arise where, in the national interest, the demand for what we have termed in this report "fast-track legislation" is justified. But when such circumstances arise, it is essential that everything is done to protect the usual safeguards for proper scrutiny that have been built into our normal procedures. While the organisation JUSTICE argued in its evidence to us that,
	"it is important that both the law and the law-making process are sufficiently flexible to address situations that require urgent action",
	Professor Bradley, although not disagreeing, also reminded us that:
	"It ought not to be assumed without question that the possibility of rapid legislation is an attractive feature of the United Kingdom's flexible constitution".
	That is a rather delicate way of putting it, but his opinion is clear.
	The chief danger of fast-tracking legislation is the shortage of time—time to consider the problem; time to consider the appropriate legislation; time to consult with interested MPs and their committees, and with all those interested parties outside Parliament who would be affected; and time to debate the proposals at proper length and proper pace as they progress through Parliament.
	At present, the role of the House of Lords is very important. In many instances, although a Bill is being fast-tracked, when it arrives at the House of Lords, usually it is processed at a more normal speed and with reasonable time for reasonable debates. At present, this House acts as an important safeguard in the fast-tracking process. However, we must remember that there is much talk of changes to this House, in both its membership and its role. If future changes result in the Government having control of business in this House similar to that that they have in the other place, then a serious safeguard against the misuse of the fast-tracking process may well be lost.
	It was suggested to us that fast-track legislation could not be used lightly as it put "enormous pressure" on departments and,
	"huge demands on parliamentary counsel".
	Furthermore, it was said that part of the problem was the nature of the drafting process, which only a limited number of people were equipped to undertake. Be that as it may, the pressures, the temptations—call them what you will—can arise to try to short-process legislation without its passing through the normal full and time-consuming parliamentary processes. Such temptations can arise not only with draft Bills but, as has been mentioned already, with amendments to Bills made at a last stage in their progress through the House. They also arise in the creation of new delegated powers. There should be always an early review of fast-track legislation and a system of post-legislative review of such legislation built into the system; whether it is flexible or firm, there should be some form of legislative review.
	Perhaps I may say a word about the importance of the House's Delegated Powers and Regulatory Reform Committee, which plays an important role in the subject that we are discussing. I have served my time on the committee and I have a great respect for its work. It has always benefited from good chairmanship and first-class legal advice, and we recall with sorrow and sadness the recent death of a distinguished past chairman, the late Lord Dahrendorf. The committee examines every Bill that comes before this House. If it concludes that any delegation contained in a Bill gives too much power to a Minister, or that a proposed statutory instrument does not give the right level of parliamentary scrutiny to a proposal, it reports this to the House. Its usefulness is emphasised in that more often or not the Government accept any proposed changes recommended by the committee. Indeed, one suspects that, important though the work of the committee is, its mere existence and the knowledge of its effective and certain scrutiny of any legislation must play an important part in the original government drafting of the legislation in question.
	I conclude with two quotations from the report. The first quotation is by Professor McEldowney, who said:
	"There is a constitutional principle that bothers me. The constitutional principle is this, that urgency should not set the principle. The principle should be that the bill be given a robust, transparent analysis".
	I agree. The second quotation is from Professor Bradley, who said:
	"The House of Lords should take its own decision as to what is required ... we have a bicameral legislature and it must be for this House to decide for itself what it wishes to do ... one would hope that this independent decision by the House of Lords is kept at all costs and is made a real test for the Government to satisfy".
	I say amen to that.

Lord Pannick: My Lords, Thomas Jefferson wrote in a letter in 1787 that if he had to choose between having government without newspapers or newspapers without government, he would unhesitatingly choose the latter. Jefferson, of course, did not have to contend with newspapers dissecting his private life or, indeed, his expenses. However, applying a similar principle, there are some noble Lords—I hope I am not the only one—who take the view that effective opposition is as important to the good health of our constitution as effective government.
	The evidence received by the Constitution Committee, of which I am a member, illustrated the extent to which the fast-tracking of legislation hinders effective opposition. In our system of parliamentary democracy, the Government enjoy—and rightly so—a number of advantages which assist them in promoting legislation to address the problems that confront us from time to time. In particular, the Government benefit from a civil service which has a collective experience and a collective wisdom that has thought about these problems and thought about the possible solutions which may be adopted. When the Government have digested the advice from the civil service, they can call upon skilled parliamentary draftsmen to express in legislative terms the policy on which they have decided. Opposition—whether it is the Official Opposition, the Liberal Democrats, occasionally those of us on the Cross-Benches; sometimes right reverend Prelates and sometimes, on occasions, Back-Benchers from the government side of the House—inevitably depends on a less well-oiled machine. That is no criticism—far from it—of opposition researchers, who do such an excellent job.
	The reality, however, is that while Ministers are being driven off at speed in their official cars, the opposition are running along behind, trying to keep up, hoping for a lift. An effective opposition frequently—not exclusively, but frequently—depends on the lift which is provided by interest groups such as Justice, Liberty, the Bar Council, the Law Society and many of the other organisations that explain to noble Lords the consequences of government proposals. They help us to understand the gap which the proposed legislation will leave, deliberately or accidentally, so that we can raise such matters in the House.
	All this takes time, as the noble Lord, Lord Shaw, reminded us—time for the interest groups to understand and analyse the proposed legislation; time for them to brief us; time for us to understand the points; time for us to draft amendments to highlight possible deficiencies in the legislation. The faster the legislative timetable, the less effective opposition inevitably will be, and the product will inevitably be of lower quality. Paragraphs 44 and 45 of the Constitution Committee's report contain some of the evidence we received that supports these points. It is for these reasons, among others, that legislation should be fast-tracked, as the committee has recommended, only where it is strictly necessary.
	I am very grateful to the Government, as I am sure are all noble Lords, for their positive response to the committee's report. However, I would respectfully invite the noble Baroness the Leader of the House to clarify two aspects of the Government's response. The first matter is whether the Government accept the proposal that, when Ministers explain to the House why fast-tracking is necessary in a particular case, they should address all the points listed in paragraph 186 of our report. Those points were read out by the noble Lord, Lord Goodlad. The noble Lord, Lord Rowlands, referred to them, and the noble and learned Lord, Lord Morris, rightly said that they are pivotal to our report. I fear that the Government's response to the report on this matter is ambiguous. It says:
	"Ministers remain prepared to justify the need for expedition to the House, including covering those issues set out in the Committee's report".
	There is, or there may be, an important distinction between Ministers being prepared to address these points if asked to do so and their accepting the committee's important recommendation at paragraph 186 that they should address all these specific topics orally and in a written memorandum whenever they propose that legislation is to be fast-tracked.
	The other matter on which I would invite clarification is the Government's response to the proposal that there should be a presumption in favour of a sunset clause whenever legislation is fast-tracked. The Government's response rightly points out that there will be cases where a sunset clause is inappropriate or unnecessary and, therefore, that a case-by-case analysis is required. However, the committee recognised that a sunset clause will not always be appropriate. Its point was that a presumption is justified by the fact that fast-tracked legislation will inevitably have involved a sacrifice of some of the time and attention devoted to proposals for legislation. A presumption simply means—but importantly means—that a proper case has to be made for not including a sunset clause. Like the noble Lord, Lord Norton, I simply do not understand why the Government reject, as they appear to do, the committee's recommendation that there should be a presumption of a sunset clause. I should be grateful if the noble Baroness the Leader of House would explain the Government's position.
	I have had the privilege and the pleasure of serving on your Lordships' Constitution Committee for almost one year. It is for noble Lords who are not members of the committee to comment on the value of our work, but I echo the tribute paid by the noble Lord, Lord Goodlad, to our adviser, Professor Andrew Le Sueur, for his invaluable contribution to the work of the committee. Like other members of the committee, I also thank the noble Lord, Lord Goodlad, for the wisdom, skill and unfailing courtesy with which he has chaired the work of our committee.

Lord Maclennan of Rogart: My Lords, like the noble Lord, Lord Parekh, who spoke earlier in this debate, I did not have the privilege to serve on this committee, but I think that the noble Lord, Lord Goodlad, and his committee have provided this House with a weighty, authoritative and well argued report. I adopt its conclusions and advocate strongly that the Government respond in detail, particularly to the two last points made by the noble Lord, Lord Pannick, to which I shall return.
	Like the noble Lord, Lord Rowlands, I entered Parliament in 1966. When I heard him speak earlier in the debate, I recognised that we came to these subjects from the same position. We have both experienced a sense that the procedures and the time taken to consider legislative matters have been rather less scrupulously regarded as the calendar has moved on. Notwithstanding the example of the Commonwealth Immigrants Act, which, like the noble Lord, Lord Parekh, I regard as the least honourable legislation that was passed in my first Parliament, I believe that the management of government business in Parliament has become too mechanistic and that the introduction of programming, particularly and almost exclusively in another place, is something to which we might give some post-legislative scrutiny—and I fear that we might well find it wanting. It is not least for that reason that the role of this House in acting as the body that can open up the discussions about legislation which have remained closed in another place is not to be departed from readily or lightly. This House has the power under Standing Order 47 to act with rapidity in response to a perceived crisis, but I hope that it would not be done without proper, open consideration of the arguments in a way that has not always characterised the deliberations of another place.
	Not only has the committee produced an exceedingly valuable series of suggestions of proposals, but it has elicited very weighty evidence from experienced people and from some of our leading constitutional lawyers. Sometimes the Executive are faced with situations in which it is not possible to delay the response. I heard with familiarity the reference to the late Lord Jenkins, who gave colour to this point by saying that his greatest satisfaction was to see the headline, "Jenkins acts". But I do not know that he would necessarily have regarded action as involving legislation. To cite that illustration as an exemplification of the case for passing yet another variation on the criminal justice system because there has been a headline in a tabloid newspaper about a particularly shocking crime is not something that we should draw as a proper conclusion.
	The fast-track procedure has become more common than it used to be, though it is still not very common. Professor Anthony Bradley drew attention to that in his evidence to the committee. Some of us have noticed recent examples with dismay; not so much as regards executive action but, as the noble and learned Lord, Lord Lyell, said, as regards aspects of the Parliamentary Standards Act. It did have the characteristics of Alice in Wonderland about it, and although my party broadly supported action, I am not entirely certain that the action implemented in the form of that particular Act is one that we will live with with satisfaction for very long.
	The key issues that we should recognise as presenting problems are that, as Professor Bradley said, the most cherished liberties in the common law can be taken away as rapidly as the freedom to keep dangerous dogs. There can be unacceptable pressure on parliamentary draftsmen, which can easily result in not mere infelicities but unforeseen consequences. The need to consult and legislate transparently is a crucial part of our democratic system. Cut-down debates in this and another place have a very damaging effect on public awareness of what the issues are. We have taken a number of steps to improve our legislative processes and to avoid the unexpected consequences of our action in the past decade. We have instituted the Joint Committee on Human Rights and given watchdog committees powers and recognised their role. However, it is a great mistake not to embody those checks in situations of emergency, which lead to fast-track legislation. I very much hope that the recommendations of the committee will be observed and acted on by the Government.
	The crucial questions that the Minister has to answer in this debate are, first, how she and the Government and, in particular how this House, are to be treated in answering the recommendation that a Statement that contains reference to the eight principles set out in paragraph 186 of the committee's report should precede fast-track legislation. They have been read out before and I shall not allude to them again, though each of them is of great importance, individually and collectively.
	It must be clear that the Bill is not being used as a vehicle to attach some issue to, in addition to the matters that have given rise to the urgent legislation. The legislation should not be a vehicle for what has been stored in the relevant department. Do the Government accept that a procedure is required to give effect to the Government's recognition of the need to justify expedition? The procedure recommended, of a Statement in the House and in the Explanatory Memorandum, seems to me highly commendable.
	Finally, the other explicit answer that the House is looking for today is the Government's response to the presumption that the sunset clause is the appropriate way in which to deal with these matters to give time after the event to review how the legislation has worked and to undertake that that will be part of any fast-track legislation, unless authoritative and clearly accepted reasons are given.

Lord Bates: My Lords, I rise in this important debate to congratulate the members of the Constitution Committee on bringing forward this report and giving us this timely opportunity to discuss the fast-track process. I am a relatively new Member of the House and an even fresher Member of the Front Bench on this side. So much of politics today is focused on product and so little attention is given to process—yet process determines product in its quality and purpose. The focus on this element has broadened out in the debate into a wider consideration of the way in which we do scrutiny. I pay tribute to my noble friend Lord Goodlad for his chairmanship and leadership in preparing the report and for the way in which he has tried to hone the extensive evidence that has been presented into some basic principles which can then be used as a test for other legislation that may be introduced under this measure. It would be interesting to see, perhaps as a further piece of work, whether, had those principles been applied to some of the Bills to which we have referred during this debate, they would have qualified for this additional privilege and purpose.
	The report also makes some distinctions about where we are focusing our attention in terms of the problem. It is appropriate for your Lordships' House to have a sense of humble pride in the deliberations that take place here and some concern about the nature of debate as it is currently constituted in the other place. There are some basic principles that differ. For example, the Government do not have control of the time and do not have the ability to introduce programme Motions in this place, as they can and nearly always do in the other place. I am sure that that is a frustration to the Government from time to time, but it is also an important safeguard of the quality of debate in this place.
	There are other elements here, such as the juxtaposition of this debate with the previous Third Reading debate on the Apprenticeships, Skills, Children and Learning Bill—the mammoth piece of legislation to which the noble Lord, Lord Rowlands, referred. At the end, there was a fascinating exchange between the Front-Benchers and the Cross-Benchers. This was a significant piece of legislation that had been hugely changed as a result of debates in this House and compliments were paid about the good work that had taken place. The noble Lord, Lord Elton, referred to the time allocated for consideration and the consultation that was undertaken, particularly with external bodies, professional associations and learned and knowledgeable people in the field who would be affected by the legislation. Finally and most crucially, the Government were in listening mode to the representations that were made and therefore brought forward the necessary amendments. Sometimes, we focus way too much on the negatives about bad legislation and far too little on the positives—about what constitutes good parliamentary activity and good legislation.
	My noble friend Lord Goodlad quoted Tony Benn saying that "When Front-Benchers agree something in private, Parliament should be at its most vigilant". I am sure there is an echo here. It is important in this process. But it is important for Her Majesty's Official Opposition to put on the record that we have an eye on one day being on the government Benches. The recommendations in this piece of work do not make comfortable reading. The point of political scrutiny and parliamentary procedure is to make the Government uncomfortable. It is a problem if the Government ever become comfortable because the purpose of Parliament is to hold the Executive to account. That is what has been happening.
	There is a concern about the increasing use of guillotines, a point made by the noble Lord, Lord Rowlands, and the increasing pace with which debate in the other place is truncated. Therefore, legislation comes here needing significant new amendments and refinements.
	My noble and learned friend Lord Lyell referred to the Parliamentary Standards Bill, which was one of the triggers for the debate that we are having this evening and for the report. One of the criticisms in the report is that in the legislation mould that we are in there is a cry for something to be done. Well, sometimes, something must be done. That is what has been happening to Parliament and its reputation. This has without doubt been one of the greatest crises in confidence in the parliamentary process that I have ever known and that there has been for a very long time. There has been a huge crisis and something needed to be done. People needed to see that we were prepared to act. That was the point made by my noble friend Lord Norton.
	There are safeguards that we can introduce. The late tabling of amendments makes it very difficult for interested parties to be involved in discussion and debate, particularly from the point of view of the Official Opposition who do not have access to the Bill teams and the Civil Service. I am sure that I speak for the Cross Benches too when I say that that means you rely very heavily on speaking to trade bodies and people who are working on the ground in the areas that you are legislating on to hear their concerns about the impact of the legislation on them.
	I was also particularly interested—perhaps it could be an area for further work—in the costs of poor legislation. We talk about badly drafted and technically flawed legislation and we say that it can leave legislation open to legal challenge, but what are the costs of that? That is a pertinent question. It may be something that needs to be looked at in greater detail going forward, but what are the consequences of poorly drafted legislation in terms of adding to bureaucracy and not achieving desired outcomes? When we are rushing through at a pace, clearly that has an impact and a potential financial cost, and delays in essential legislation can and do occur.
	My noble friend Lord Shaw talked about the dangers of rapid legislation and the importance of speed as a safeguard in this House. When matters are rushed through we do not have time. I say "We do not have the time" as if we were the only actors in this field, but what about the Bill teams, the civil servants and the agencies responsible for adjusting to the legislation and implementing it? They, too, do not have time to prepare. That is a persuasive point about the current pace of legislation.
	The noble Lord, Lord Pannick, made a crucial point about the exogenous forces at work on Parliament and the importance of the media. We are in a media age and the media sensationalise and sometimes trivialise, moving from one headline to another. That is a difficult environment in which to legislate. That is one reason why Parliament must be an essential safeguard in the whole process in guaranteeing freedoms, scrutiny and process, in sensible legislation, for concerns that are legitimately raised within the media.
	These are all difficulties that we will be wrestling with as a Parliament, but the debate initiated by the committee and its excellent report is timely and essential, not only for the Opposition but for the Government if we are further to regain and rebuild the reputation of Parliament in this country.

Baroness Royall of Blaisdon: My Lords, I too thank the noble Lord, Lord Goodlad, and the Select Committee on the Constitution for their timely report on fast-track legislation. I also thank all noble Lords who have spoken this afternoon. I was very grateful for the opportunity to offer evidence to the committee on this inquiry and for the further opportunity to contribute to the debate today. I apologise to the noble Lord and the committee for the late submission of the government response. I, too, share the disappointment of the committee and very much regret our tardiness. There is no excuse. I take personal responsibility and I should have chased it up.
	The Government welcome the committee's report on fast-track legislation. It is right that parliamentary procedures are reviewed from time to time to ensure that they are being properly used and not abused, and the committee has fulfilled an important task with this particular inquiry and report. Fast-track or expedited legislation is not new. The committee lists well over 30 Bills which have been subject to fast-track procedures since 1974 and notes that several others could have been included in the list, depending on exactly how fast-track legislation is defined. It is not a matter of circumvention and avoidance, but of the need to respond swiftly to certain circumstances. It may be worth reiterating at the outset that expedited Bills are not constitutionally different from other Bills; they must pass through the same legislative stages in both Houses. All noble Lords are right to say that we must be vigilant in the use of fast-tracking.
	I will deal with the quotation from Tony Benn about when Front Benches all agree. Some noble Lords have suggested that legislation is fast-tracked based on agreements between the usual channels, which are conspiring against Back-Benchers. It is right and proper that the Government should seek the co-operation of the usual channels. That then provides a platform from which to seek to win over the rest of the House. However, it is not a substitute for seeking the views of the rest of the House; it is a starting point, and that is right and only proper.
	Of course, I would respectfully disagree with the noble Lord, Lord Norton, when he suggested that the Government had failed to engage fully with the committee's report. The committee quite naturally seeks safeguards to secure proper scrutiny of legislation. Equally naturally, we must be wary of giving undertakings when we cannot foresee all the possible circumstances in which the Government—or indeed future Governments —might need to expedite legislation.
	In relation to the tabling of late amendments, we agree with the committee's recommendation and have always accepted that late amendments are inherently undesirable. However, as the committee recognises, such amendments are sometimes unavoidable and should not automatically be regarded as a sign of weakness in the scrutiny process. On the contrary, late amendments can sometimes demonstrate that scrutiny has succeeded—for example, when we table concessionary amendments to deal with points raised by noble Lords or in another place. However, I assure noble Lords that we will continue to work hard to limit the number of late amendments that are tabled on the Government's own initiative.
	The committee urged us to show self-restraint when looking to fast-track affirmative statutory instruments. The committee is absolutely right. The committee itself noted that the JCSI's scrutiny reserve has been overridden on only five occasions since 1990. We rely on the co-operation of the JCSI and the Merits Committee when the timetable for obtaining approval of an affirmative instrument is unusually tight but, as the committee notes, it is for those committees to decide whether to accede to Ministers' requests. I pay tribute to the Merits Committee and the JCSI for their work, and emphasise that we make every effort to ensure that the House has had the benefit of the views of both committees before it is invited to approve affirmative instruments.
	The noble Lord, Lord Shaw of Northstead, drew our attention to the work of the Delegated Powers Committee, which certainly plays an extremely important role in our legislative process. I heed his wise words and the quotations that he cited. He raised the question of time, as did the noble Lord, Lord Pannick, who is of course welcome to walk home with me this evening to discuss these and other issues. I agree that, for all the reasons he gave, legislation should only be fast-tracked when specifically necessary. The process can indeed help to determine the product, as the noble Lord, Lord Bates, reminded us. Of course, time is of the essence for good opposition, and good opposition—as well as good government—are key to good governance. I certainly recognise that. The fact that we do not have programme motions in this place helps to safeguard parliamentary scrutiny in many ways.
	The Government very much welcome the committee's support for pre-legislative scrutiny. The report recommended that the Government put mechanisms in place for parliamentary committees and stakeholders to comment on proposed fast-track legislation ahead of Second Reading in the first House. We will certainly consider further how we can make better use of the pre-legislative scrutiny process in fast-track legislation on a case-by-case basis. However, as the committee also recognised, by their very nature, fast-track Bills require flexibility in handling, and we therefore do not believe it would be practicable to set out in advance what type of pre-legislative scrutiny can be achieved in each case. The Criminal Evidence (Witness Anonymity) Bill was considered by the Joint Committee on Human Rights and the Constitution Committee during its passage through Parliament. This is perhaps an example that we could build on.
	The Government also accept the committee's recommendation that use of the No. 2 Bill procedure, which was used during the passage of the Banking Act this Session, should not be extended. We agree that the advantages of this procedure are normally outweighed by its disadvantages.
	The committee reminded us that the Minister responsible for the Bill should be required to make an Oral Statement to your Lordships when the Bill is introduced, making the case for fast-tracking—a key part of the debate today. The committee also set out a detailed list of issues that such a Statement should cover. The Government fully agree with the principle of the committee's recommendation, and the issues on which the House can expect an explanation. We welcome the greater openness and transparency that adherence to the principle should bring. We will ensure that Ministers make their case on each occasion that fast-tracking is proposed. The list of points set out in paragraph 186 of the committee's report offers an excellent template for how such explanations should be formulated. The procedure by which the Government put their case for fast-tracking before the House is something that deserves further consideration. I would like to discuss this further with the noble Lord, Lord Goodlad, as well as the usual channels.
	I well understand the importance that my noble friend Lord Rowlands and others attach to an Oral Statement, but I want to ensure that whatever is agreed really meets the demands of the committee. Simply requesting an Oral Statement would not in every case meet those needs. I very much agree that the Explanatory Memorandum to the Bill could—perhaps should—include a statement about the need for fast-tracking. I will certainly pursue this further. I also note the suggestion of the noble Lord, Lord Norton of Louth, about the suspension of standing orders when we need to condense stages. I will take that back and reflect further.
	The committee recommended that there should be a presumption in favour of the use of sunset clauses in fast-track Bills, and that the Government should make the case for excluding such a clause, where they have done so, in the ministerial Statement. We believe that the use of sunset clauses should continue to be considered on a case-by-case basis, although we fully accept the committee's recommendation that the House is entitled to an explanation of why a sunset clause is not included in a fast-tracked Bill. As ever, we will continue to listen to the views of the House on this and other issues. I am grateful for the support of my noble friend Lord Parekh, who perhaps brings a fresh perspective to this issue.
	The issue of presumption depends in many ways on how one defines the word. If by "presumption" one means that generally sunset clauses are a good idea, I cannot accept that, as I mentioned. As I also said in my evidence to the committee, there are Bills, including those brought forward in response to court cases, for example, where the uncertainty introduced by a sunset clause would be contrary to the intention of the legislation. However, if by "presumption" we mean that Ministers should be prepared to justify why no sunset clause has been included in a piece of fast-tracked legislation, I can absolutely accept that. I think that is what is required of us under point (e) in the list of issues set out in paragraph 186.
	The committee also made the related point that any legislation subject to a fast-track procedure should be subject to post-legislative review within one or two years. We recognise the principle behind the committee's argument. Where Parliament's consideration of a Bill has been carried out quickly, it should be given an early opportunity to reconsider the legislation. Where there is adequate evidence about the operation of an Act for the Government to carry out an early review, we agree that there is a case for doing so. However, it would not be productive to conduct post-legislative reviews before an Act has had time to take effect and its impact has been understood. I will come back shortly to the Parliamentary Standards Act, which could be cited as an example of that.
	The Government remain committed to conducting post-legislative scrutiny within three to five years of Royal Assent. In light of the strong case made by the committee, we will endeavour to conduct reviews as early as possible within that window. Where there is sufficient evidence about the operation of an Act to bring post-legislative scrutiny forward, then we will do so whenever possible. I note the comments made by the noble Lord, Lord Bates, about the costs of bad legislation. I certainly think that we should reflect on that also.
	The noble and learned Lord, Lord Lyell of Markyate, and the noble Lord, Lord Maclennan, referred to the Parliamentary Standards Bill. Urgent action was required to address an unprecedented crisis of public confidence in Parliament. It was necessary to have the establishment of IPSA well under way so that it could take forward the recommendations of the Kelly report. That is what is happening, thanks to the expedited passage of that Bill. It was not just a question of action being seen to be done, although that was important; action was already taking place in respect of, for example, an external audit by the NAO and the establishment of a review by the Committee on Standards in Public Life. However, we had to ensure that legislation was passed before the Summer Recess in order to allow IPSA time to recruit members and staff, find premises, establish an administration and complete consultation on an allowances scheme and code of financial conduct before the next election. I think we all agree that we want to conclude all the issues in relation to parliamentary allowances and what has gone before prior to the next election so that we can all start with a clean slate. That is why we brought forward that expedited legislation.
	My noble and learned friend Lord Morris of Aberavon clearly demonstrated the potential pitfalls of fast-track legislation, but one can see why the Criminal Justice (Terrorism and Conspiracy) Act 1998 was deemed a necessity at the time; in retrospect, perhaps it is not. My noble friend Lord Rowlands asked about Northern Ireland legislation and the need for normalcy, as he put it, in relation to Northern Ireland. That, too, is my strong desire. The Northern Ireland Act 2009 was an important piece of legislation that gave effect to an agreement between the First and Deputy First Minister, but I sincerely hope that truly was the last piece of the jigsaw.
	Overall, I hope that the committee and the House will recognise that the Government have reflected carefully on the recommendations contained in this report, and accepted the vast majority of them. As we are on the eve of a new legislative Session, this is a particularly apt moment for the Government and the House to be engaging on these matters, and I reiterate my thanks to the noble Lord, Lord Goodlad, and all other noble Lords who have participated in the debate this afternoon for providing us with the opportunity to do so.

Lord Goodlad: My Lords, I briefly express a word of appreciation to the members of the committee for their work on the report, and to those who have spoken in the debate today: the noble Lords, Lord Rowlands, Lord Parekh, Lord Maclennan of Rogart and Lord Pannick; my noble and learned friend Lord Lyell of Markyate; the noble and learned Lord, Lord Morris of Aberavon; my noble friends Lord Norton of Louth, Lord Shaw of Northstead and Lord Bates; and lastly, the noble Baroness the Leader of the House.
	Years ago in another place I remember that Enoch Powell said that he was participating in a debate even when he did not speak in it. The importance of this subject has been witnessed by the very large number of noble Lords who have participated in the debate without speaking in it.
	The quality of our legislation in a very fast-changing world affects every citizen in the country. There is a view that Parliament is gradually ceding its functions to arms of the Executive in a prolonged fit of negligence, absent-mindedness and torpor. The quality of our debate today gives the lie to that view. We are extremely grateful to the noble Baroness the Leader of the House for her unfailing courtesy, her response today and the Government's response to the report. We shall consider both with great care in the committee and respond accordingly.
	Motion agreed.

Financial Regulation: EUC Report

Copy of the Report Vol I
	Copy of the Report Vol II

Motion to Take Note

Moved By Baroness Cohen of Pimlico
	That this House takes note of the Report of the European Union Committee on The future of EU financial regulation and supervision (14th Report, HL Paper 106).

Baroness Cohen of Pimlico: My Lords, in opening this debate, I need to thank several people for their help in a long and difficult inquiry in which we took a huge amount of evidence. My thanks and those of the committee are due to our special adviser, Professor Rosa Lastra, without whom I do not think we would have found our way through the complications of the subject, and, as always, to the committee clerk, Rob Whiteway, and our specialist adviser, Laura Bonacorsi-Macleod. We share Laura with another sub-committee but she manages to juggle both of us.
	In the particular circumstances of this report I also owe a personal debt of gratitude to my friend and colleague, the noble Lord, Lord Woolmer, who had to oversee and supervise the writing of the report while I lay palely in hospital earlier this year. Little did he know when he sought a place on this committee what it might entail, but I and the committee are truly grateful to him.
	I have another and sad acknowledgement to make. Lord Steinberg, a valued member of this committee who made a substantial contribution to this report, died suddenly last week, and is much missed by us all. He was a good man and a good colleague.
	In discussing or writing about the complex subject of financial regulation, the committee used the following definitions of supervision and regulation. We took regulation to be the actual rules that are written down and supervision as the application of those rules to a particular firm and making sure that it follows those rules. We have stuck to this throughout.
	I will begin with regulation. At the time of the publication of the report in June, the European Commission had brought forward four proposals for the reform of the regulatory system. One was on capital requirements, another on deposit guarantee schemes, a third on the regulation of credit rating agencies and a fourth on the regulation of alternative investment fund managers. The first three of these proposals has been firmed up into European Union law. As Sub-Committee A is in the middle of a detailed inquiry on the fourth, alternative investment, I will not comment on that matter today.
	The proposal on deposit guarantee schemes—which, as I am sure all will remember, guarantee bank deposits of up to €50,000, which rises to €100,000 by December 2011—was greeted with general acclaim. The amendments to the capital requirements directive were generally well received by our witnesses, but the directive on credit rating agencies was less so. In general, we identified a need for the Commission to abide by better regulation principles when drafting legislation. Thorough consultation of affected parties must be conducted on all the proposals and rapid action in response to the crisis must not come at the expense of poorly drafted regulation. We urge the Commission, where necessary, to conduct reviews of emergency legislation to ensure its effectiveness.
	Further, we found that it was crucial to ensure that all regulation in the European Union was in touch with the global approach. If it was not, it risked damaging the competitiveness of European Union financial institutions. However, we did, and do, welcome the appetite in the European Union for reform of financial regulation, which the crisis proved was so badly needed. Carefully drafted regulations at European Union level can help reduce the level of systemic risk in the financial system and therefore help to prevent future crises. We said at the time that we would welcome more overt countercyclical regulatory measures, both through amendments to the capital requirements directive and the Basel rules.
	Subsequent to the publication of our report, the Commission has published further revisions of the capital requirements directive, as well as proposals for the regulation of derivatives markets. We are considering all these items in detail as part of our scrutiny process. After we have completed the enquiry on which we are currently engaged, on alternative investment, we expect to undertake an enquiry on the Commission's proposals to regulate derivatives, which clearly played a huge part in the crisis.
	The committee's examination of supervisory reform focused on the report of Jacques de Larosière on the reform of financial supervision within the European Union. His report proposed a more unified system of financial supervision within the European Union, consisting of two main components: a body to examine macro-prudential risk at an EU level and recommend actions to reduce this systemic risk; and a system of European supervisory bodies to co-ordinate national financial supervisors in the task of micro-prudential supervision.
	As the implications of the financial crisis became clear, it was recognised that supervisors in the United Kingdom, the European Union and globally had failed to identify the impending meltdown and had failed to take preventive action. Not only did the crisis, very naturally, provoke a flurry of activity to strengthen regulation and supervision of financial services within the European Union, but it has perhaps been inevitable that colleagues in the European Union have tended to lay the blame principally at the doors of US and UK supervisors, Governments and bankers—rather tending to ignore the contribution of their own major banks, which are making the same mistakes and plunging into buying the same derivative products that have become utterly removed from any connection with the underlying assets.
	There is a good deal of truth in the perception that it was the Anglo-Saxon capitalist model, carried to extremes, which brought the crisis on all of us. It is for this reason that it has been and remains difficult to make the case for financial innovation and freedom that has enabled world GDP and world trade to grow so substantially since the Second World War. Yet the case must be made. Innovation must not be stifled, or the whole of Europe will turn into a fortress and become markedly less competitive with the rest of the world.
	We looked at everything we did against this background and against some considerable opposition and resistance from European colleagues. We supported the institution of a European Union body to assess macro-prudential risks as a welcome step to looking to prevent a future crisis. However, we noted that in order for such a body to reduce systemic risk, there must be structures in place to strengthen the likelihood of macro-prudential risk warnings leading to action from the supervisor at a member-state level.
	On the structure of micro-prudential systems, we examined in detail the role of the current Lamfalussy level 3 committees. We agree with Mr de Larosière that, if reformed, they could play an effective role in the co-ordination of supervision at an EU level, linking colleges of supervisors for individual banking institutions, the macro-prudential body and national supervisors. A body playing this role would help link together all supervision within the EU and provide better protection against systemic risk, through information sharing and co-ordinated action.
	However, we recognised that while national Governments continue to bail out banks at an EU level, it will be difficult, if not impossible, to provide any micro-prudential body with actual powers of supervision. This was the point made by the FSA, that he who pays the piper inevitably has to call the tune. We also recognise that such a body would have to be instituted within the current European treaty, as there is currently little appetite for further treaty reform beyond Lisbon.
	Subsequent to our report, the Commission has published both a communication, in July, and then legislative proposals, in September, based on the communication, to implement the recommendations of the de Larosière report. To summarise the proposals: a European systemic risk board will be constituted to assess macro-prudential systemic risk across the EU; and three new European supervisory authorities will co-ordinate national supervision, implementing a single European rulebook through decisions that will be approved by the Commission. These three new European supervisory authorities cover not only banking but also insurance and pensions, thereby closing, it is hoped, all the gaps through which systemic risk in the financial system might appear.
	Not three hours ago, my noble friend the Minister discussed with my committee the different roles of these bodies and the powers that they will have. It is early days, but much is hoped of them. There remains a persistent concern about whether the European supervisory authorities will be able to impose financial conditions. In our report, we also examined the success of the Commission's state-aid policies in relation to the recapitalisation of banks. We found that the flexible, rapid and pragmatic approach of the Commission to the application of the state-aid rules had ensured that member states were allowed to support failing banks, but that risks to the single market have been minimised. However, we also thought that it was important for exit strategies to be devised for these banks to ensure that state intervention and the subsequent competition problems that this poses are kept to a minimum.
	The Commission recently published its recommendations on the restructuring programmes of the Royal Bank of Scotland, Northern Rock and the Lloyds Banking Group. These, in effect, will reduce the size of all three banks and create up to three new high street banks, potentially increasing competition in the banking sector. These recommendations, agreed with the United Kingdom, show that appropriate importance has been placed on ensuring that state intervention does not inhibit competition within the banking sector. However, the taxpayer still owns significant parts of all these banks, and delivering viable exit strategies to return these banks—and other banks throughout the European Union—to private ownership must remain a crucial aim. My committee will continue to scrutinise developments in this area to ensure that in the long term this is what happens. Indeed, after we have disposed of derivatives, we will certainly consider an inquiry into state aid. It will be a busy year.
	Overall, we agreed that reform of financial supervision and regulation is necessary in the wake of the crisis. As well as installing systems to reduce systemic risk within the EU financial system, greater co-operation among national supervisors will lead to a stronger single market. However, all reforms must be compatible with regulation in other major financial centres to ensure that European Union financial players are not disadvantaged by burdensome and obstructive regulations.
	We therefore welcome the Commission's proposals on reform of supervision and the subsequent movement to reach general agreement in the European Council in December as the first steps towards an interconnected system of supervision within the European Union which can help to prevent a future financial crisis. However, there remain some questions which have to be answered. My noble friend Lord Myners has been generous with his time at all stages of our inquiry and has answered all the questions that we have asked. However, I wish formally to put a few questions which I should like him to answer at the end of this debate.
	Can my noble friend comment on the rapid speed of reforms at EU level and, in particular, is he happy that better regulation principles have been followed in the drafting of the legislation? Specifically, does he agree with the committee's recommendation that there should be explicit countercyclical provisions within the Basel rules and the capital requirements directive? How are the Government working to ensure that exit strategies are produced for banks that have been recapitalised—again—with taxpayers' money? Within what timeframe does the Minister envisage for the return of these banks to private ownership? Most vitally, given that decisions in the new European supervisory authorities are to be made by qualified majority voting, are these authorities able to force the adoption by the UK regulatory authorities of decisions which our own regulatory authorities voted against? Does he believe that the safeguards in Article 23 provide sufficient assurance that these authorities will not be able to impinge on the United Kingdom's fiscal autonomy? I beg to move.

Lord MacGregor of Pulham Market: My Lords, the noble Lord, Lord Vallance, the chairman of the Economic Affairs Committee, cannot be here this evening and sends his apologies. It falls to me, therefore, to introduce our report. I begin by paying tribute to our chairman, who steered us with skill and patience through much evidence, many sessions and a highly complex and topical subject. The Economic Affairs Committee has a broad remit and normally enjoys a wide choice of topics for its inquiries, but in the autumn of 2008 the banking crisis chose itself. We were not, of course, the only parliamentary Select Committee in the field, as is shown by this joint debate tonight. The topic has also been a high-profile focus in the other place.
	We did not address directly the Government's action to recapitalise banks and stabilise the banking system. We selected instead banking supervision and regulation as an important area where the committee could bring its knowledge and expertise to bear. The inquiry was launched in December 2008 and the report was published in June this year. We are most grateful to all those who gave evidence, to our committee clerk and staff and especially to our specialist adviser on this occasion, Professor Alan Morrison of the University of Oxford, for his invaluable contribution.
	Much has been said, written and analysed about the causes of the crisis and I do not have the time to go over that ground in any detail tonight. With the benefit of hindsight, we can see that the scene for the banking crisis was set by a long period of cheap money, plentiful credit and asset inflation in major western economies and by the explosive growth in debt securitisation and derivative trading. At the same time, the risks of new financial instruments were clearly not well understood. Perhaps, as in previous bubbles, the main players thought that the good times would keep on rolling and failed to see the danger until too late. It is fair to say that the ability of the authorities to respond was constrained because markets are now global, while supervision and regulation remain mainly national, as the noble Baroness pointed out. It is clear that in Britain, as in other countries, the system of regulation failed in its key role to prevent crises or to mitigate their effect.
	In our committee, we tried to focus on drawing the right lessons. In particular, we looked at how the regulatory system worked before and during the crisis and at the policy responses that followed. We urged the Government to take the care and time necessary to get the changes right, including, of course, taking account of the vital European and international dimension. However, we welcomed the Government's swift introduction of the Banking Act 2009 and its special resolution regime, which puts in place new insolvency procedures for banks.
	The Government produced a lengthy response to our report, for which we are grateful. We made a large number of recommendations over many issues; I can touch on only some of them tonight. I shall list briefly the areas of agreement between us and then focus on a few other matters of importance. My noble friend Lord Forsyth of Drumlean may want to raise others.
	On the points of agreement, the Government and our committee both called for better macro-prudential supervision. We both favoured countercyclical measures, setting capital aside in the boom periods to see the banks through the downturns. We called for pre-funding of the Financial Services Compensation Scheme. The Government aim to introduce partial pre-funding, but not before 2012. They accept our observation that pre-funding would have a countercyclical effect. We both agreed that regulation of liquidity should be strengthened, that international macro-prudential supervision should be encouraged, that the Financial Stability Board announced in the G20 communiqué must be sufficiently independent and resourced and that changes in the EU must be aligned with global measures.
	I turn to a select few of the issues on which I believe the debate is still open. Time prevents me from dealing with them all—for example, on bank bonuses, I am as incensed as anyone at the rewards for failure and bonuses for immediate returns irrespective of the risks and losses that ensue. There are many important conclusions and recommendations that I have had to leave out, but I turn, first, to the disagreement between the Government and us as to how macro-prudential and micro-prudential supervision should be undertaken in the future. We spent a considerable time discussing the tripartite system; it was perhaps the area to which, in the end, we gave the most thought. We concluded:
	"Without a clear executive role, the Bank"—
	the Bank of England—
	"can do no more than talk about financial stability".
	We also concluded:
	"A clear lesson to be drawn from the recent financial crisis is that the current arrangements failed to recognise the natural affinity between responsibility for financial stability and for macro-prudential supervision of the banking and shadow banking sectors".
	We therefore believed that responsibility for macro-prudential supervision and systemic risk should be given to the Bank of England, which already has macroeconomic expertise. There would be senior representatives from the FSA and the Treasury on that committee. We urged the Government to carefully consider the case for and against giving more micro-prudential supervision to the Bank of England as well. The Government took a different view. I note, however, that it is now official Conservative policy to abolish the FSA—macro-prudential and micro-prudential supervision would switch to the Bank and there would be a new financial policy committee at the Bank including independent members—and to establish a new consumer protection agency, combining the consumer protection functions of the FSA and the OFT.
	Without straying into controversial debate tonight—it is my task to report fairly the whole committee's conclusions—and without commenting on the possible outcome of next year's election, I simply observe that there are arguments on both sides of this issue. The present Government's decisions may well not be the end of the matter; they are not set in stone. If there are to be further reconsiderations after the general election, I believe that the discussion in our report will be worth revisiting and taking into account in future deliberations and decisions.
	Secondly, we argued that contributions to the Financial Services Compensation Scheme should be at least broadly related to the riskiness of the business in which regulated firms engage. There are some similarities here with the way in which the Pension Protection Fund levy is calculated. There were also particular issues in this connection relating to building societies. The Government rejected this proposal and I would be interested to hear the Minister's response as to why they did so.
	Thirdly, we took considerable evidence about the role of credit rating agencies, on whose ratings so many banking decisions relied. This is a complex area, which I personally believe has been much underrated in all the post-mortems on the crisis. There are conflicts-of-interest issues. There is a loss of market confidence in the skills and abilities of the rating agencies. We put forward two tentative recommendations. The Government did not take up one of them, which was to require agencies to make a modest investment in the assets that they assess, and I understand why. We were seeking to strengthen the constraints in the regulation of credit rating agencies. However, the fact that changes are required is in my view indisputable. I welcome the steps that have been taken by G20 leaders and in the EU for a new regulatory regime and greater transparency for these agencies. I note with interest that both points—on regulation and on transparency—were commented on in the European Union Committee's report, in paragraphs 56 and 57. I also note its support for removing the reliance on ratings for regulatory purposes, in conjunction with similar changes to the Basel rules.
	Fourthly, on corporate governance, we received much criticism of the role of the non-executives on bank boards. I declare former interests as a non-executive in a number of companies, including one financial institution, albeit not a bank. There is no doubt that big mistakes were made, but such criticisms should, in my view, even more be levelled at senior executives. Did they fully understand all the complex instruments in which they were trading and investing? Yet by and large the non-executives in the major banks were highly skilled, experienced and dedicated people who, by all accounts, devoted considerable time to their role. There has been much discussion about "too big to fail" banking institutions. Is there not an issue sometimes about "too big to manage", particularly from the point of view of part-time non-executives? We put forward several recommendations to assist in dealing with this. Since then, we have had Sir David Walker's review of corporate governance in UK banks and other financial industry entities. I hope that the House will return to this and debate his final report.
	We examined the "too big to fail" issue and the possibility of a Glass-Steagall type of solution. We reached no conclusion beyond the rather vague one of,
	"a unique opportunity to take stock of the financial system".
	The Governor of the Bank of England, who gave evidence on the issue, said that there was a strong argument for legislation that would ensure a diversity of banking institutions. He noted that there were strong arguments both for and against separating commercial banking from the securities business. He went on to say that,
	"what I would encourage everyone to do, this Committee and other committees, is to take some time now to think our way through these issues. They are immensely important, we will not get another opportunity to restructure our banking and financial system in a hurry and it is very important that we take this opportunity".
	We took his advice and concluded, perhaps because we could not reach an agreed view ourselves, that there should be no rush to write the legislation required to support new structures, and that it was more important to get the details right than to resolve them quickly. The governor, to judge from recent reported remarks, may be reaching towards a solution rather faster than we are.
	The report of the Economic Affairs Committee is just one contribution to the debate on the banking system that has raged in the press, boardrooms, Government, Parliament and the country since the banks were bailed out with vast sums of taxpayers' money. Cool, balanced and far-sighted judgment is needed on which of the many reforms put forward are most likely to pave the way for the restoration of a sound and dynamic banking system, which is internationally competitive and above all is able to sustain London's position in world markets.
	My committee colleagues and I found this a fascinating and complex inquiry. We gained much insight and help from the many experts and participants who gave evidence that will continue to assist us as we work our way forward. There have been many developments since we published our report, and we welcome them. The severity of the banking crisis and the depth of the recession that has followed call for a thorough review of the options so that decisions on the future of the financial system can be seen to be well grounded. I hope that our report will play a small part in that.

Lord Renton of Mount Harry: My Lords, it is a great privilege for me to follow the speeches that have just been made by the noble Baroness, Lady Cohen of Pimlico, and by my noble friend Lord MacGregor. I have served for the past two years on European Union Sub-Committee A, dealing with finance. It has been a great pleasure to serve under the noble Lord, Lord Woolmer, who acted as our chairman for the report that we are discussing tonight, and also under the chairmanship of the noble Baroness, Lady Cohen.
	As my noble friend said, we have been through the worst financial and credit crisis for major banks since the 1930s, and there is no guarantee that these problems will not happen again. It is against that background that, as a member of the Committee, I looked carefully at the regulatory proposals put forward by the European Commission to see if they contained a solution. They read well, but I was not convinced that they went far enough. As the noble Lord, Lord Woolmer, knows, I was not convinced that the de Larosière report, with its college of supervisors, was going to make the changes that were needed. I did not feel that we as a Committee, and the witnesses who came before us, gave enough importance to the probable future strength of the European Central Bank. The reason for this was perhaps not just financial, but also political. It was difficult for us because we were not in the euro. Therefore it was hard to support the European Central Bank in regulating and supervising banks in the 16 euro countries in case the European Central Bank found some reason in the treaty to become more active in the United Kingdom—or in case there was a recovery in the political demand to join the euro.
	I will read from paragraph 91 on page 27 of our report, headed "The ECB". It states:
	"The role of the European Central Bank in both macro and micro-prudential supervision has also come under discussion. The ECB has promoted the idea that it should play a stronger role in financial supervision. M Trichet, President of the ECB, declared that the ECB 'stands ready' to take on supervision responsibilities ... The ECB has been cited by some as the best-placed organisation to hold macro-prudential supervisory responsibilities ... because of its position as the largest central bank in the EU and the possibility of this happening without Treaty amendment".
	That says it all. There was a real fear among some of our witnesses that, if more power was given to the ECB, it would take over prudential and supervisory work for all banks in the European Union.
	If one adds to this the national jurisdictional domain of fiscal authorities that raise taxes, one sees that there are significant obstacles to transferring supervisory responsibilities to an EU body. I felt that this was not working well. Noble Lords might look at pages 68 and 69 of our report, where I took the unusual step of suggesting amendments to the text. They will be pleased to hear that I do not propose to read out those suggestions now but I was supported by the noble Lord, Lord Moser, and we had a vote, the result of which was two for and two against. The rules state that the question should be decided in the negative unless there is a majority in favour, so we did not win. I think that our report might have been more effective if we had won, but your Lordships would expect me to say that as they were my suggestions in the first place.
	The major development that has occurred since our report came out, to which the noble Baroness, Lady Cohen, referred, is the proposed European Systemic Risk Board, which was announced on 25 September this year. It is a major step forward. This body will be responsible for macro-prudential oversight for the banks, and it is interesting that the word "oversight" is being used rather than "regulation" or "supervision". It is a new word and it seems to me that those who coined the phrase are going to get away with it. As I said, it is potentially a very important step forward, and I know that the Minister, who very kindly talked to us for two hours this evening, supports the principle of the ESRB. He used a rather good phrase: he said that it will have an ability to see adverse weather ahead. Thus, if, for example, banks increased their leverage to a dangerous extent, that would be just the sort of point that the ESRB might cotton on to quickly and point to others to take action on it. So perhaps in the ESRB we will have the right economics and philosophy that are needed for financial stability. There is certainly a little more hope in this suggestion of greater stability ahead.
	Finally, on a quite different subject, I turn to the Prime Minister's surprising, to my mind, public support at the G20 meeting a few days ago for a new global tax on financial transactions—that is, the Tobin tax. I regard this as a remarkable step forward. Today, the Guardian in a very interesting article mentioned that a study by the Austrian Government showed that a 0.05 per cent tax imposed on financial trades in Britain would raise about £100 billion a year. If that is so and if it were to happen, it would deal substantially with the debt problem that the banks have caused and might also provide some cash for climate change in poor countries where money is very much needed for this purpose. In any pursuit of this idea, there will of course be many problems ahead. The first is that it has to be a global tax—it cannot allow for any country to be an exception. However, I note that the IMF is waiting for a report on how the tax could be implemented. I think we all await that with very great interest.
	I end with a euphoric quote from the article in today's Guardian that I have just mentioned. It says that the Prime Minister's Tobin tax,
	"should be a roof-raising, banker-bashing, debt-defying, public-service-saving, rabble-rouser of a political winner".
	It is not often that a new tax has those terms applied to it but one could say that, if this tax comes into effect, it will certainly change the picture.

Lord Skidelsky: My Lords, as a recently retired member of the Select Committee on Economic Affairs, I give a warm welcome to its report on banking supervision and regulation. I recognise in its clarity of language and cogency of argument and in the balanced nature of its recommendations the hand of the skilled drafter and expert adviser, as well as the assembled knowledge and wisdom of the committee.
	This report, like others that the committee has produced, serves an important educational function: it should be required reading for all those who want to understand the origins of the banking crisis and the steps that might be taken to prevent such events in the future. However, its remit allows it to cover only part of what went wrong and what needs to be put right. Reform of the financial system has to be fitted into a larger framework of reforms covering the conduct of macroeconomic policy, the liquidation of the global imbalances between China and the United States, and, I would argue, the distribution of wealth and income in our society.
	The report's discussion of the causes of financial fragility is excellent but, in my view, does not go quite far enough. The reason is that the report remains captive to what I would call the risk modelling paradigm. That is the belief, to quote from the FSA's Turner report that:
	"The risk characteristics of financial markets can be inferred from mathematical analysis, delivering robust quantitative measures of trading risk".
	If that were so, financial markets would never crash. The fact that they do must be due, therefore, to a failure in the transmission of information somewhere along the line. That leads inevitably to policy recommendations based on devising better methods of risk management.
	It is true that the committee has doubts whether mathematical risk models can be applied in all situations. There is an important passage in paragraph 62, which rightly says that statistical models are no substitute for judgment based on analysis. In paragraph 36, the report recognises that mathematical forecasting models rely on parameters which are assumed to be fixed but are actually shifting. In paragraph 39, we are told that supervisors should actively question the assumptions underlying bank risk models. In fact, the chief assumption that needs questioning is that those models can give a robust measure of risk.
	The truth is that the risk modelling paradigm makes claims far outside its proper domain. It fails to take seriously Keynes's distinction between risk and uncertainty. That is very important for all clear thinking about both the causes of the crisis and what changes in the structure of the banking system are needed. What will average house prices be in 10 years' time? Is any noble Lord willing to bet on a number? Is any other noble Lord willing to insure him against the bet being wrong? Our risk management models are constantly making the assumption that we can attach precise numbers to those contingencies.
	It is for those reasons that George Soros has called for credit default swaps to be banned. The report does not go that far; it simply suggests that the credit default swap market should be made more robust. The main problem is not that those trades are opaque, but that the insurance offered was phoney, because it was not based on actuarial principles. We should not allow firms to offer insurance against uninsurable events. That is a species of fraud.
	In their response to the report, the Government wanted more effective stress testing,
	"which allows firms to assess the impact of more extreme events ... not captured by traditional risk management models".
	However, that also presupposes the possibility of giving numbers to extreme events, and that is just not correct.
	Large consequences for bank supervision and regulation follow from taking uncertainty seriously. As noble Lords will know, there is a big debate going on, which finds an echo in this report, on whether countering financial fragility requires the separation of different forms of banking along the lines of the Glass-Steagal Act of 1933, or whether it can be accomplished solely by what is called macro-prudential supervision. The risk management school naturally favours the second. It proposes increasing the buffers of capital and liquidity to guard against high-risk events. Those might include contracyclical capital ratios—the requirement that capital ratios go up in good times and down in bad times.
	Of course those measures will do good, they will reduce the fragility in the system, but they are designed to leave the structure of banks untouched and to give them greater capital cover for the same set of activities, without restricting their right to engage in those activities. What is more, they assume that the size of the buffers and the timing of their variants can be measured, whereas uncertainty is unmeasurable.
	For example, they assume that the regulators will be able to discover exactly at what point in the cycle they are. Does anyone really believe that? First, it presupposes the existence of the cycle. Secondly, it presupposes knowledge about the length of the cycle. Thirdly, it presupposes knowledge about where we are in the cycle. All that is supposed to be gathered in some central regulatory agency and then instructions issued to the banks on the basis of the figures. That is a completely utopian view. What is more, banks will easily be able to game such regulations. They are very clever at doing that.
	Anyone who takes uncertainty seriously is bound to favour some substantial break-up of the banking system into different sectors. The logical line of division should be between commercial banks and investment banks. The noble Lord, Lord MacGregor, quite rightly said that the report states that we should think about these things seriously and not just dismiss them out of hand as being impossible to achieve in a global economy. Many arguments in the report cry out for this kind of separation. For example, conglomerate banks, which are very big banks, have become too complex to manage. Everyone wants better non-executive directors but, as was also said by the noble Lord, Lord MacGregor, the complexity of the business makes it difficult for boards to understand all its aspects. Then let us take pre-funded insurance levied on the size of contributions. That runs up against the difficulty of measuring the riskiness of different classes of loan business. There are many problems with the strategy of simply leaving the structure of the banks unchanged and making them hold more capital and liquidity. This deserves serious thought.
	I shall end on this note. The City of London performs a valuable service for the economy in this country. It is also its most powerful economic lobby, and like all lobbies, it tends to rate the value of its services higher than they are worth, a point recently made by the noble Lord, Lord Turner. This is a problem of long standing. It may amuse your Lordships to realise that Keynes wondered, way back in 1913, so before the First World War,
	"how long it will be found necessary to pay City men so entirely out of proportion to what other servants of society commonly receive for performing social services not less useful or difficult".
	Plus ça change, plus c'est la même chose. At least a time of crisis offers the Government a chance to reform the City in the light of Winston Churchill's remark, made when he was Chancellor of the Exchequer in 1925, that he,
	"would rather see finance less proud and industry more content".

Lord Trimble: My Lords, I shall speak to the report of the European Union Select Committee Sub-Committee A, of which I have the pleasure to be a member. I shall not try to go into all the detail of the proposals for financial regulation and all the matters that are spun off from it: the de Larosière report and many other things. There were times when we were looking at this issue when I felt the need for a cold towel around my head in order to try to grasp what was going on, so I am going to keep clear of that detail. I intend to make four points with regard to regulation and will then comment on procedures and state aids.
	My first point repeats what was said to us many times by the Government and by other witnesses. It is that regulation has to lie essentially with national regulators as they have the fiscal resources, they are the lender of last resort and only they can do a bail-out. To digress for a moment, I say to my noble friend Lord Renton, who commented on the amendments he proposed and the narrow vote that occurred, that I am very sorry to have to tell him that had I been able to attend that meeting, there would have been no need for the chairman's casting vote. He might have been disappointed by the way I would have voted.
	Returning to the necessity for regulation to rest with national regulators, that is why in the Explanatory Memorandum that the Government have produced on the proposed legislation that has now come out, they say that,
	"the Government will seek to ensure that no European Supervisory Authority decisions can have a fiscal impact on a Member State".
	The Explanatory Memorandum continues, using language such as "seeks to ensure" and,
	"some improvements to the fiscal safeguard",
	but that does not sound as though it emanates from someone drawing a firm red line.
	As the legislation stands today, the European Supervisory Authorities could take a decision that impinges on our fiscal authority. As mentioned, we took evidence from the noble Lord, Lord Myners, earlier today, and were told that the Government are not content with this situation and continue to argue against that possibility. However, this matter will be determined by qualified majority voting, and I did not get the sense this afternoon that the Government were confident of the outcome or sufficiently determined to get their way. That is a matter of considerable concern, certainly to me.
	My second point relates to the European Systemic Risk Board, which is there to try to avoid a future major crisis but which has no powers other than to make recommendations. I find the constitution of this board rather curious. It will consist of some 61 persons—all the governors of the national banks, national regulators and others—and will look at the weather and try to detect what is coming, as has been said. However, the size of the board militates against the sort of considerations that are necessary.
	I am reminded that one of the reasons for the regulatory failure before the credit crunch—there is no doubt that there was regulatory failure before then—was that the FSA took the line that if one company was doing the same as all the other companies, nothing was wrong, even though it turned out that they were all doing foolish things that ended in disaster for some of them. This is the sort of herd instinct that occurs in the more exuberant stages of the boom and helps to contribute to the intensity of the subsequent bust. Is there any reason to believe that the 61 persons who will sit on the European Systemic Risk Board will be immune to that herd instinct? I think they are more likely to share it.
	My third point is that although the proposals contain a lot of new structures—the European Systemic Risk Board, the European Supervisory Authorities and all the rest—there is a sense that simply creating new bodies solves the problem. It does not. The question is what they will do, what remedies they will have, what proposals they will bring forward, and what policies they will have to try to prevent or mitigate another crisis.
	Our report recommends that there is,
	"an overt counter-cyclical capital regime"—
	namely, that banks should save money in the good times so that it can be used in the bad times. I am sure noble Lords will be familiar with George Osborne's slightly different formulation of that principle. This does not require the structures which the EU proposes. We were told that this counter-cyclical approach was applied by the banks in Spain, which is why they came out of the crisis so well. Before they did this, however, the Spanish Government had to disapply an international accounting standard that limited capital retention to known risks. I have not heard anywhere in the discussion—I may have missed it—whether there has been any change to that accounting standard or how one will bring about a counter-cyclical approach if we have the accounting standards that prevented other banks from building up capital during the good times if they so wished. I hope that the Minister can enlighten us about what will be done to promote a counter-cyclical approach, because everyone seems to be using that phrase and endorsing that approach.
	My fourth point relates to a comment in chapter 8 of our report in which we recognise that,
	"all regulation must be in coordination with global initiatives".
	A double perspective is essential. I rather share the view, to which the noble Lord, Lord Skidelsky, referred, that the basic underlying causes of the crisis were the global imbalances and the huge surpluses that were generated in eastern and far eastern economies but not reinvested in those economies or allowed to feed into higher domestic consumption there. Those surpluses were invested in America and in Europe, thus fuelling the asset price bubbles, the bursting of which triggered the credit crunch. Please note that in that view the so-called sub-prime issue was a symptom of the burst rather than the cause of the crisis.
	We are now to have a global Financial Stability Board to work with the IMF, which is welcome. I hope that it can address those imbalances and the undervalued currencies that have helped to create those imbalances, which would be a benefit to the world's economy. I hope that the European Union will work positively with the Financial Stability Board, but I am not encouraged by a comment from a Commission official, who is quoted in paragraph 204. He said that,
	"you cannot deliver the global without the European".
	That seems to me to have got things around the wrong way. The financial system is global. Europe cannot isolate itself from it. It would be foolish to insist that European solutions come first or to say that you have to modify those global solutions in order to show that you are making a contribution to it or to add wee things to satisfy some localised interest rather than doing what is best from a global perspective.
	I am left with the impression that the Commission's procedures were not the best. In paragraph 68, we note,
	"significant criticism from our witnesses for",
	the draft,
	"being prepared and agreed at an unnecessary pace without adhering to the principles of Better Regulation".
	But worse was to follow. On 29 April, when the noble Lord, Lord Myners, was giving evidence for this report, he anticipated the Commission's proposals for an alternative investment manager's directive which appeared later that day. In that evidence he said:
	"I have a fear that we are going to see something coming from Europe later on today which leaps at hedge funds and private equity as a source of instability in a way which is not necessarily as well informed as it should be".
	He referred also to the approach as being too speedy and to the dangers of a failure to think through consequences. He supported the view,
	"that a proper process, careful consideration, evaluation and broad debate based on a consultation with published responses is the right way to handle this".
	On 14 July, while giving evidence on the AIFM directive, the noble Lord returned to this issue. He said that we were lobbying our colleagues in Europe,
	"to address prejudice and a lack of understanding".
	Later in that evidence he described proposals for private equity funds as perverse.
	The noble Lord is usually very measured and restrained in his language, but I thought that those terms, with which I entirely agree, were quite appropriate. But is it not a shocking situation that we were then describing, and are now describing, the procedures of the European Commission in those terms? I hope that we never see that sort of behaviour from the European Commission again.
	I have to acknowledge that the Swedish presidency has worked very hard to get some sanity into the process and the Minister here today seemed content that the dragon's teeth have been drawn, although we still have the one-size-fits-all problem. We have also learnt that the European Parliament has now to do an impact assessment. But such an assessment, risk analysis and proper consultation should have preceded publication in order to comply with better regulation. It seems that this was an old proposal, which had been lying around in the Commission for years, and, in the circumstances, was suddenly dusted off and rushed out without anyone bothering to think carefully or clearly about it.
	In our final chapter we comment favourably on the operation of state aid in this crisis. The Commission recognised that the emergency justified state aid. It asked for an exit strategy for fundamentally sound banks and a restructuring plan for distressed banks. On the latter point we had evidence, at paragraph 220, which states that,
	"restructuring plans are needed to ensure that banks return to 'viability'. This ensures the capacity of a bank to operate profitably ... in some cases the viability of a bank could depend on some degree of retrenchment in certain areas to avoid risks and losses".
	We have seen the Commission's requirements on these matters, and they have been touched on in the debate. I am going to comment on some aspects of the Commission's requirements for the Royal Bank of Scotland. In doing so, I should mention that many years ago I was for a while with the Royal Bank of Scotland on an Industry and Parliament Trust attachment, but it was way back in 1995 and I did not complete it because I found myself bound up in other issues at the time. Just in case anyone remembers, I had better mention it, but I do not think that it has influenced my approach to this matter.
	There are two aspects of the proposals for RBS that I find curious. It is required to divest itself of its insurance wing and to reduce its overseas operations. These are both highly profitable parts of the bank. If the object of the plan is a return to viability, how do you justify compelling the bank to divest itself of extremely profitable assets? The Government appear to be content with these demands, so I have to ask whether they were consulted in advance. Was there a discussion with the Government about it? If there had not been this process, would the Government through their shareholding have compelled the bank to behave in this way? Were they in favour of breaking up the bank? Press comments have referred to these measures as Europe punishing the bank for the receipt of state aid, but that is not compatible with the Commission's objectives as quoted above, nor is there any sign of this being justified as a competition measure. Indeed, it may not be justified in those terms in any event because what barriers are there to entry into the market? I am not sure that there are any.
	I do not want to labour the point, but I feel that we should have a further comment by the Government on this issue. Is there a detailed justification for these measures, and if they are thought to be inappropriate or disproportionate, is there any remedy, or do we end up concluding that this is another case where the terms "prejudice" and "ignorance" would be appropriate?

Lord Willoughby de Broke: My Lords, I begin by congratulating the two chairmen and members of both committees for producing these two stimulating reports. What I did not grasp until I started preparing for this debate is that the questions that the reports address are not remotely new. Banking crises have been erupting periodically for centuries. Sovereign default on loans is an everyday hazard for banks, just one example of which was the downfall of the Medici banking family in Florence. The difference now is that the roles are reversed. It is banking default that threatens sovereign structures.
	As long ago as 1825, there was a dress rehearsal for the present crisis. The then director of the Bank of England put it thus:
	"We lent [money] by every possible means and in modes we had never adopted before; we took in stock on security, we purchased exchequer bills, we made advances on exchequer bills, we not only discounted outright, but we made advances on the deposit of bills of exchange to an immense amount, in short, by every possible means consistent with the safety of the bank ... Seeing the dreadful state in which the public were, we rendered every assistance in our power".
	As the noble Lord, Lord Skidelsky, said, plus ça change, plus c'est la même chose. Nothing seems to have changed in the intervening 184 years except that the decimal point has moved a couple of places to the right. Central banks are still taking on collateral whose value remains unquantified. Even credit default swaps, about which the noble Lord was very rude indeed, have an historical precedent. It is no good Citibank or Goldman Sachs congratulating themselves on paying themselves huge sums of money for original thinking. Back in the 12th century, King Baldwin II of Jerusalem secured a loan using his beard as collateral. No doubt he, too, thought he was doing God's work.
	Having looked back, let us look forward to find out what can be learnt. Both reports make the central point that there should be no rush to action or quick fix. The report of the noble Baroness, Lady Cohen, concludes by saying:
	"But there should be no rush to all-embracing new legislation".
	Taking that into account, I should like to touch on two points which I think deserve further consideration. The first is the question of deposit insurance, and I wonder whether this is the right way to go.
	Let us take the example of Icesave, which is dealt with in Chapter 7 of the report on EU regulation. Deposit insurance by definition must make depositors risk-insensitive. Why should they care when the taxpayer will pick up the tab? As soon as Icesave went down the tubes, local authority treasurers, charity treasurers and university and college bursars who had placed money with Icesave came bleating to the taxpayer for help.
	I had a deposit with Icesave. Icesave was an accident waiting to happen. It was quite clear that that was the case; you had only to read the financial pages early in 2008 to know that it was time to pull for the shore. If a simple peasant could work that out, what were the overpaid council and charity treasurers and college bursars doing with their minds idling in neutral? Depositors should understand that a deposit is nothing more than a loan and thus carries a degree of risk. If depositors want a risk-free deposit they should buy gilts or put their money with NS&I. State protection—or, more accurately, taxpayer protection—for depositors carries a double risk as state support stokes future risk-taking by banks. It is only rational behaviour for banks to double their bets: if the bets come off they win; if they do not, the state guarantees their losses. As Vince Cable pointed out, the gains are privatised and the losses socialised. I hope the Government will look carefully at the danger of taxpayer guarantees.
	This brings me on to the equally difficult question of how to deal with financial institutions that are too big to fail or, as the noble Lord, Lord MacGregor, said, too difficult to manage. The banking supervision report looks at this problem in some detail, making a number of sensible suggestions to de-risk the taxpayer. I should like to add something different to the mix. I suggest, rather diffidently, that there may be lessons to be learnt on banking structure from the unlikely source of hedge funds. Noble Lords will be aware that hedge funds were the villains of choice as the cause of the banking crisis; subsequent analysis has, however, shown that they had little or nothing to do with it. Why? Because, unlike banking, the hedge fund sector does not consist of a small number of large players but a large number of relatively small players. On the face of it, prudence and hedge funds seem unlikely bedfellows, but please listen to this quotation:
	"It may be coincidence that the structure of the hedge fund sector emerged in the absence of state regulation and state support. It may be coincidence that the majority of hedge funds operate as partnerships with unlimited liability. It may be coincidence that, despite their moniker of 'highly-leveraged institutions', most hedge funds today operate with leverage of less than a tenth that of the largest global banks. Or perhaps it might be that the structure of this sector delivered greater systemic robustness than could be achieved through prudential regulation. If so, that is an important lesson for other parts of the financial system".
	Who wrote that? It was not some financial scribbler in the financial press. No—it was taken from a paper called Banking on the State,written by the Executive Director of Financial Stability at the Bank of England, Andrew Haldane. I leave the thought with the Minister that that paper was written by an adviser at the Bank of England; it deserves careful study.
	On the question of EU regulation of our financial services, the committee asked whether the EU is the right area for action, going on to recognise the dangers of over-regulation and a resulting loss of global competitiveness. It also usefully underlined London's pre-eminence in financial services, pointing out that London would lose much more than any other member state from ill thought out regulation. What it did not say, perhaps out of misplaced tact, is that there is an EU bias against London's success. The German Finance Minister, Peer Steinbrück, in an interview with the BBC on 23 September, said:
	"There is a clear lobby in London that wants to defend its competitive advantage tooth and claw ... We will deeply change the rules of the game for financial markets".
	However, I draw some comfort from the unequivocal statement in paragraph 94 of the report, which says:
	"Witnesses told us that giving binding powers to any EU body was not possible under the EC Treaty".
	It went on to say,
	"no EU body is currently able to make binding decisions over national supervisors".
	So far so good, but can the Minister explain how that squares with his Written Answers to the noble Lord, Lord Pearson of Rannoch, on 21 July this year? He asked the Government,
	"whether they have power to prevent overall control of the United Kingdom's financial system and its supervision passing to the European Union; and, if so, whether they will exercise that power".
	The Government's reply, through the Minister, was:
	"The European Commission has indicated its intention to use Article 95 of the EC treaty as the legal basis for its proposals to establish a European System of Financial Supervisors. The European Commission has confirmed that day-to-day supervision of financial institutions should remain at the member state level".—[Official Report, 21/7/09; col. WA365.]
	I gather that this proposal, as the noble Lord, Lord Trimble, mentioned, will be subject to qualified majority voting. So it seems that when the debate gets political, the UK can simply be outvoted.
	This subservience to the EU's political agenda has recently been cruelly spotlighted by the sorry story of the Royal Bank of Scotland's mugging by the Competition Commissioner, Neelie Kroes. She forced disposals on Stephen Hester, the chief executive of the Royal Bank of Scotland, in discussions that he termed "bruising". He said at his press conference that,
	"the settlement with the EU makes recovery harder ... the disposals don't improve competition and don't improve our ability to pay back the taxpayer".
	That is a not a very good result, is it? The noble Lord, Lord Trimble, who is not in his place, was absolutely right that the Commission seems to have decided that it wanted a political trophy and the Royal Bank of Scotland fitted the bill. The Treasury did not really seem to understand the damage that this could cause to the bank until too late in the day. In fact, it was behind the game all the way.
	Will the Minister tell the House, therefore, what the position is? Will control of our financial system rest with the UK or the EU?

Lord Desai: My Lords, I join other noble Lords in welcoming these two reports. They are both excellent, and, as the noble Lord, Lord Skidelsky, said, we should make them more widely available to universities, economic analysts and whoever needs to be educated in the details of this matter.
	I start my observations on a very different note by saying that crises not only happen, but are a natural part of capitalism. Crises are the way in which capitalism cures its problems. They are not accidents; they are systemic. Therefore, while we must do all that it is possible for us to do to mitigate the effects of crisis, I do not believe that any system of regulation devised by the human brain, either singly or collectively, will be able to prevent the next crisis. It will happen as sure as eggs is eggs and we will again find that the regulatory systems are inadequate and devise new ones. That is because human ingenuity, if there is enough profit incentive behind it, can always outstrip any amount of existing regulation—we at least know that much.
	Our first task as we devise these systems is to make quite sure that the costs of the crisis are borne by those who benefit from the boom. Here, we have all failed. We have not been able to separate the goats from the sheep or, I should rather say, the rabbits from the foxes. There is no doubt that the retail depositor of a modest kind—it may up be to €100,000 or £100,000—needs protection, but those who deal with investment banks, hedge funds and other such intricate instruments deserve no pity whatever. Shareholders or bondholders of banks deserve no rescuing. They should be grown-up people; they have taken risks, and they should take the consequences. I, for one, am not at all persuaded by the story told us by the City and Wall Street and all that—that somehow there was a risk of systemic failure. It was a mistake to rescue Bear Stearns; had we not done so, Lehman Brothers would have learnt some lessons and sobered up long before. So Lehman Brothers went, which sadly cost enormous sums to the taxpayer, but I would have liked to see what would have happened in a more robust environment.
	The boom was very long—63 quarters, as one report says, of uninterrupted rates of growth of GDP. It was one of the longest booms in recent history, and we had forgotten that all booms come to an end and that in the 1970s we had a banking crisis, as well as a deep recession in the 1980s and another recession in the 1990s. We just did not have a recession around 2000, so we got carried away perhaps. We should get back to the idea that we live in a system that naturally has cycles. It is unstable and cannot be made permanently stable. That is a major virtue of the system; it is not a problem, but a virtue. To the extent that we devise protective institutions, we should protect the retail depositor and perhaps—although it is too late this time—the taxpayer, rather than banks and bankers.
	I move to the recommendations of the reports. Clearly the big element is macro-prudential supervision. Unlike the noble Lord, Lord Skidelsky, I am not so against models. I think that I can say without any false modesty that in this Chamber, at least tonight, I have done more modelling in my life than anybody else—econometric modelling, I hasten to add. I see in the evidence from Jon Danielson, whom I know very well, taken by the committee chaired by my noble friend Lady Cohen, that the models that the banks used are fragile because their samples are very small. If your samples are small, it is natural that you have very unrobust parameter estimates. They do not become good just because we call them models, and they are not perfect just because we use mathematics. Aside from the idea that there is uncertainty and not risk, even the risk can be modelled much better than we are doing. We have tolerated extremely bad econometric modelling, which has cost us enormous sums of money.
	I should like to see an institution such as the IFS—something independent that would look after financial modelling and macro-prudential modelling. It should not be part of the government or the private sector but funded with sufficient resources that we can rely on its judgment about how the system is modelled. Nobody has even given me a precise definition of what "system stability" means. We are talking about financial system stability, but there are no definitions of it. I could sit down and make a definition, but to incorporate it mathematically would require enormous amounts of data and a very sophisticated technique, in which parameters drift around rather than stay constant and so on, but I think that it can be done. It is our duty, as far as possible, to improve our knowledge base much more than at present. People are getting paid enormous sums for doing bad work and it is our duty to invest in much better knowledge of how the banking system works or does not work.
	The best that we can do is not so much prevent crises but improve our mopping-up operations. Importantly, the report talks about the problem of Iceland and the related problem of the EU. When push comes to shove, a bank needs a state behind it to rescue it. Only the state has powers to print enough money to lend to the bank that is bankrupt. Unfortunately, the problem is that the state can only print its own money—it cannot print foreign money—and, in the case of Iceland, the liabilities were in foreign currencies. By the time the bank went bust, the assets were all toxic. The state of Iceland did not have enough dollars, sterling or euros to be able to bail out its own banks.
	Even if we had the most sophisticated supervisory system of the type the report recommends, the EU and its fiscal authority has no money. It does not have sufficient money to bail out a really serious big European bank. It would fall to individual European states to take bits and pieces of a large multinational, multibranch bank and rescue it. Although one example is cited in the report in which France and Belgium each rescued part of a bank that was operating in those countries, in a global banking system we would have to devise better rules about who finally pays for the rescue of a bank that is going bust. As I said, I would prefer not to rescue banks at all, but if we are going to rescue them, we need clear rules, especially in the context of the EU, when some are in the eurozone and others are in a different system.
	To the extent that we can separate out the rabbits and the foxes to protect the rabbits and shoot the foxes, the hedge fund problem is not serious. People who subscribe to hedge funds are grown-up enough to know what risks they are taking. If they do not, they should not be there. We should leave the hedge funds alone and let them do whatever they do because that is a sector of professional high risk-takers who know what they are doing and are amply rewarded for the risks that they take. We should look after the small person, but more than that we must look out for the taxpayer.
	I want to say something about all the structures that have been set up. Despite the FSA and the various other bodies that we have, what has actually worked—here I differ from the noble Lords, Lord Willoughby de Broke and Lord Trimble—is that the European Commissioner for Competition has the best policy about what to do with banks: break them up. Prudential supervision may not work, but if you can enforce rules of competition and see to it that no bank gets too big—whether a pure retail or a mixed bank—we may yet have some insurance against the likely failures and, if they do fail, the cost of rescuing them would be modest and not enormous.

Lord Forsyth of Drumlean: My Lords, I begin on a sour note by saying that I do not know what the business managers were thinking by putting this debate on at this hour of the night. Here we are discussing the most important issues facing our country, and indeed the world, at nine o'clock at night—an hour after the other place has gone to bed. The chairman of the FSA, the noble Lord, Lord Turner, stayed for all of seven minutes. If Parliament does not take its own committees and reports seriously, how on earth can we expect to restore people's faith in the parliamentary system, which is another major issue facing us this at this time?
	I enjoyed being on the committee and was hugely appreciative of the enormous time and effort that people put into giving evidence. I started the inquiry wondering, "How on earth did we get into this mess? How could so many clever people get things so profoundly wrong?". And that is what I would like to focus my remarks on this evening, as well as on Chapter 2 of the report, which deals with the causes of the crisis. My noble friend Lord MacGregor has dealt with the recommendations. I would like to pay the Minister a compliment—he looks shocked, but I very much appreciated the positive way in which the Government responded to so many of the recommendations, and, indeed, the careful way in which the Minister has played the very difficult hand that he was given just over a year ago.
	The first thing that we need to get straight, as my noble friend Lord Trimble said, is that this financial crisis was not caused by sub-prime lending in the United States. That has certainly been disastrous but, as my noble friend Lord Trimble said, it is a symptom, not a cause. The global imbalances and the lethal combination of very low interest rates and exceptional amounts of liquidity are the root causes. The Chinese have been saving vast amounts, accumulating about $3 trillion of monetary reserves. Other countries, such as Singapore, Korea, Taiwan and the oil-producing states, have done the same, while here and in the United States we were on a spending binge financed by cheap borrowed money.
	The noble Lord, Lord Butler, put it brilliantly in a speech in the debate on the economy back in May:
	"Indeed, my view, at the risk of offending both Front Benches, is that the prosperity of the past 15 years owes less to the brilliant management of Governments or the financial authorities than to an extraordinary combination of circumstances; we had a supply of cheap manufactured goods from the Far East, a flow of cheap labour from eastern European countries and an abundance of cheap credit ... The trouble is that the prosperity has been built on major imbalances in the world economy. It has been built on consuming countries, including the United States and the United Kingdom, consuming more than we were earning and living on the credit of the exporting countries".—[Official Report, 7/5/09; col. 679.]
	If you want to get to the bottom of a difficult problem, ask a former Cabinet Secretary to summarise it in three paragraphs; that, I believe, does it. Our report echoes those sentiments.
	What worries me is that these imbalances, as the noble Lord, Lord Skidelsky, pointed out, have not gone away. Just as banks such as Northern Rock can collapse when their supply of credit vanishes, so can countries. It is pretty unusual for developing countries to be exporters rather than importers of capital. Against that background of cheap money, Alan Greenspan cut interest rates whenever there was a market setback, and Gordon Brown set an inflation target which excluded housing costs and created the conditions for an explosion in house prices, funded by cheap mortgages. As an asset bubble developed, with house prices growing by 25 per cent in one year, the Bank of England did precisely nothing. Gordon Brown had taken away its responsibilities for macro-prudential supervision and given them to the FSA, which was too busy creating bureaucracy to see what was happening in individual banks such as Northern Rock, let alone to take a view on the overall financial picture.
	If this sounds like hindsight, look at the debate on the Bank of England Act 1997. The then shadow Chancellor, Peter Lilley, warned:
	"With the removal of banking control to the Financial Services Authority ... it is difficult to see how the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse".—[Official Report, Commons, 11/11/97; col. 731.]
	At the heart of this UK banking crisis is a regulatory failure and a failure of monetary policy. Gordon Brown is the author of both. He wrecked the supervision of the banking system in our country and encouraged the debt culture by boasting that he had ended boom and bust. By removing the safety barriers he made a serious crash inevitable. Not content with having caused real damage to pension funds by adding to the tax burdens on them with the changes on dividend tax, he is now talking about imposing yet another tax on pension funds and our other financial institutions—which, fortunately, his colleagues, with whom he was helping to save the world, have disengaged from. Of course he and the noble Lord, Lord Myners, now lead the chorus vilifying the bankers, but the Prime Minister, as Chancellor, was all over them once. James Crosby, the CEO of HBOS, was made deputy chairman of the FSA, the body responsible for banking supervision, and given a knighthood. Sir James was later asked to advise and report on sorting out the crisis in the housing market. He was ideally placed as HBOS went down with 40 per cent of its loan book in property, and, amazingly, with equity stakes in some of the companies to which the bank was lending money.
	The chairman of HBOS, Dennis Stevenson, was given a peerage and made chairman of the House of Lords Appointments Commission, the body which decides whether people are of sufficient calibre to make a regular and significant contribution to the Lords, as your Lordships know. Since his appointment a decade ago, in 1999, the noble Lord, Lord Stevenson, has spoken three times in this Chamber, and I can find no record of his ever having voted.
	Fred Goodwin was invited to advise Gordon on the New Deal and—of all things—on credit unions. He was in and out of Downing Street and knighted for his services to banking. He now, it seems, has been appointed as the prime ministerial lightning conductor. Alan Greenspan, the former chairman of the Federal Reserve who was responsible for cutting interest rates—the so-called Greenspan Put—and for the monetary expansion, was showered with honours and appointed a senior adviser, too. Victor Blank was encouraged to take over HBOS by a prime ministerial promise to ignore the competition consequences. In the end, of course, the Government were shown not to be able to deliver on this, thanks to the intervention of the European Commission. Today, 5,000 people will lose their jobs in the Lloyds Banking Group.
	Yes, there have been some spectacular examples of greedy and irresponsible bankers, but it is fatuous to put the systemic collapse of our financial systems down to just bankers and their greed. Some bonus systems undoubtedly encouraged short-term, risky and even reckless behaviour, and the regulator should certainly penalise banks that refuse to reform their compensation arrangements by imposing higher capital requirements on them.
	With low interest rates, pension funds and other investors wanted to find a higher return or yield and, as everyone knows, high return equals high risk. Yields are inversely proportional to credit quality. So the cash sought out weaker credit. You can achieve that by finding weaker borrowers or by taking healthy borrowers and lending them so much that they become weak ones. Soon vast amounts were being lent and the loans sliced and diced and mixed together in complex products whose creditworthiness was assessed using computer models and complex probability theory. Because they provided an income stream at a relatively higher interest level they were attractive to investors seeking higher returns. The banks thought as they no longer owned the loans they had eliminated the risk. In fact when the music stopped in this foolish game of pass-the-parcel, it turned out that the banks had been selling these securities to each other.
	I bought a new car a few years ago which had a satellite navigation system which I had read was among the best and most sophisticated on the market. My wife and I set off to spend the weekend with some friends in rural Norfolk using this new technology. My wife kept insisting that it was taking us the wrong way. I believed in the technology and ignored her increasingly strident protestations, even though the miles and time-to-destination readings were going up and not down. It was only after we passed the same level crossing for the second time that I abandoned the satnav, applied common sense, followed the road signs and we arrived safely at our destination. It turned out that the satnav had been incorrectly calibrated and thought that we were in Holland. Garbage in, garbage out.
	The regulators, the ratings agencies and the banks were all relying on defective models. Amazingly, their non-executive directors, auditors and highly paid managers had failed to do as my wife had done, which was to use their common sense and question their systems. Why? The Governor of the Bank of England, Mervyn King, got it right when he said to our committee:
	"It is not easy to persuade people, especially those who are earning vast sums as a result, that what looks successful in the short run is actually highly risky in the long run".
	The regulatory requirements which limited investment to products with appropriate ratings were intended to offer security but turned out to be a Maginot line which actually created false confidence and added to systemic weakness. You cannot predict the future from the past, as the noble Lord, Lord Skidelsky, indicated, and in any computer model the results are only as good as the data which go in. It was like trying to drive your car by looking in the rear mirror. A crash was inevitable, and when house prices started falling, mortgage delinquencies and defaults started rising. The banks were not sure what was in the structured products they had bought, confidence vanished, and no one wanted to buy any more. For banks such as Northern Rock, this meant that they could no longer raise funds to lend, and their business was over.
	It is important to understand why this crisis is worse than anything since 1929. The most important aspect is its scale. Financial institutions around the world will record losses of trillions of dollars. The capital of some of the biggest banks and lending institutions—names such as RBS, HBOS, Lehman, Citigroup, Goldman Sachs, Morgan Stanley and Merrill Lynch—has been wiped out. Lending froze because banks had to reduce it to fit their capital, which was evaporating. They even stopped lending to each other as the psychological pendulum swung from "every loan is a good loan" to "every loan is a bad one". Allowing the disorderly collapse of Lehman was a major error. It destroyed confidence and created panic. Huge sums were withdrawn from the banks as people began hoarding cash—some $480 billion in 48 hours in the United States alone. The head of the IMF said that the world was on the brink of a systemic meltdown, and he was right.
	Now we have entered a brutal recession which will add to mortgage and credit-card default as people lose their jobs and incomes. It will be slow and painful to climb out of. Banks are struggling to lend, despite huge injections of capital and liquidity, because they are trying to shrink and existing borrowers are drawing down on existing facilities. We have previously seen recessions caused by inflation, followed by monetary tightening, but this one is different. This is driven by plummeting asset values which have damaged the balance sheets of the financial sector, households and Governments. We are all poorer than we thought we were and have to cut back.
	Even now the Government do not seem to get it. You cannot solve a problem caused by excessive borrowing by borrowing more money. It is like applying for another credit card to pay off the others. In the end, it makes things worse, not better. It might buy you time, perhaps until after a general election, but the pain and costs of addressing the problem will be greater. The era of make do and mend is back. Incomes for most people have remained fairly steady over the past decade, but many folk felt flush because they thought their homes and investments were worth more. It was an illusion. Now things have reversed and it will take years for confidence to recover.

Baroness Hooper: My Lords, at this hour, I do not propose to make a lengthy intervention, even if there was anything significant left to say. In any event, the noble Baroness, Lady Cohen, very skilfully set the scene and raised most of the relevant issues for the Minister to answer regarding Sub-Committee A's report. However, I take this opportunity to thank her and, on the occasions of her unavoidable absence, the noble Lord, Lord Woolmer, for their effective chairmanship of this inquiry. It was certainly a challenge for me as a new member of Sub-Committee A, but it was a fascinating experience. The report covers an immensely complicated and detailed area of financial regulation and supervision at a time when urgent action was being demanded on all sides. In case it is deemed necessary, I declare an interest as chairman of the advisory boards of Barclays Private Equity infrastructure funds.
	At the outset of our investigations in February of this year, two things concerned me in a general way. They remain matters of concern. The first was the speed at which banks and other financial institutions were able to enter into some of the complicated transactions that led or contributed to the financial crisis, as well as the huge volume of those transactions, all made possible by new technology. This was an important part of the problem and the reason why the crisis, and its extent, seemed to explode on us and take most people by surprise.
	The second concern was the need to allow for innovation. After all, it was and still is innovation that has served this country well and enabled the City and our other financial centres to be world leaders. It has been said that six of today's most in-demand jobs did not exist 10 years ago and that in the 21st century we will have to train our children to do jobs that do not yet exist using technology that has not yet been invented. What is true for education is equally true in the finance sector. We have to find a way of ensuring that the new bodies being set up under the proposals before us can cope with developments at ever increasing speed and in ever increasing volume. It was not innovation that let us down; it was the failure of senior management within financial institutions and their regulators, as well as their boards of directors and auditors, to understand it properly and the risks that it brought. That point has been well made by several people who have spoken in this debate, including initially my noble friend Lord MacGregor.
	I find it hard to see how the three layers of financial supervision that we are now facing—at national, European and global levels—will deal with these two concerns and avoid stifling innovation while providing effective early warning systems in such a rapidly changing world. The noble Lord, Lord Skidelsky, emphasised this challenge brilliantly. I suppose that we have to start somewhere. However, in doing so, we should bear in mind one of the conclusions of our report, which was, in effect, that there should be lengthy debate on supervision rather than a rush into legislation. I believe that that is still valid and I fully support the remarks made by the noble Baroness, Lady Cohen, on it.
	Today's debate is part of that process. It has been very useful to have this joint debate and I trust that not only will this House take note of our report and the report of the Economic Affairs Committee but that the Government and the European Union institutions will take note of and act on them.

Lord Haskins: My Lords, I declare an interest, with a record—infamous, maybe—on regulation, having been chairman of the Better Regulation Task Force for a number of years. I believe that regulation, like taxation, is a price that we pay for an affluent democracy, but I also believe in the broadest sense that there is a great danger that society expects too much of regulation, so that regulation becomes a substitute for judgment and personal accountability. While both reports concentrate on the need for further regulation, there can be little doubt, in my view, that the real cause of the crisis was not inadequate regulation, however inadequate it might have been, but a combination of catastrophic failures of corporate governance in the banking boardrooms and flawed monetary policies, particularly in the United States and Britain.
	Had the boards of most though not all of the big banks in Britain, the United States, Germany, Iceland and the Republic of Ireland done their job properly, they would never have allowed their executives to take such reckless risks with shareholders' money—as exemplified by the RBS takeover of ABN Amro. Nor would they have paid bonuses based on short-term gains of a very dubious nature. They would have drawn much clearer lines between their investment and retail banking activities—these lines became very blurred. They would never have approved trading activities, especially in securitised debt, which they did not understand; and they would never have encouraged their customers to run up absurd levels of debt based on the premise that the property market would never again take a downturn.
	As for monetary policy, when the then chairman of the United States Federal Reserve, Alan Greenspan, made his now infamous comment about "irrational exuberance", he did nothing about it, believing that the market would correct itself. The Government and the central bankers were barking up the wrong tree. Their preoccupation with controlling inflation led them grossly to underestimate the dangerous levels of credit being handed out by the banks.
	The regulation of financial markets is a nightmare. The banks are too large and too complex to be easily regulated. The markets in which they operate are global, while the responsibility for regulation rests largely with national Governments. This is a particularly big problem in the European single market. The regulatory structures are complex and blur accountability. The three regulatory players in this country—the FSA, the Bank of England and Her Majesty's Treasury—were all uncomfortable about developments in Northern Rock, but nobody blew the whistle until it was too late. Lastly, banks are notoriously secretive about their activities.
	There are arguments for urgent, radical regulatory reform in Britain and the EU. The public are clamouring for something to be done—this is always a dangerous situation for a good regulator—especially about bonuses. With the banks on the back foot, it is better to strike while the iron is hot. This relates especially to the Anglo-Saxon bankers of London and New York. However, there is a powerful case for not acting too quickly. Rushing through regulation without proper consultation, and without fully assessing possible unintended consequences, usually results in bad regulation.
	The credit rating agencies must carry a lot of responsibility for the debacle. Hired by the people who were trading in securitised debt, they issued triple-A ratings to thousands of transactions, and the banks relied on these assessments instead of carrying out their own due diligence. There have been calls to regulate the agencies tightly, but this would be a mistake for two reasons. First, there would be a danger that the agencies' assessments would swing from being excessively risky to being excessively cautious and risk-averse. Secondly, people would become too reliant on credit agencies for their own good, when instead they should become less reliant on them.
	We should return once more to the issue of improving corporate governance. Along with many others, I devoted—and wasted—much time on the issue in the early 1990s in wake of the Maxwell scandals. Sadly, our efforts were in vain. Somehow, we must require boards to be far more diligent about their corporate governance responsibilities, and to stand up to overbearing, ego-driven chief executives. The best way to achieve this is by obliging the obsequious institutional shareholders to be far more positive and long-termist in holding their boards to account. I am always happier when directors invest significantly and on a long-term basis in their companies, because they are risking their own money. Too many modern boards are reluctant to follow this practice.
	I turn to my final thoughts about the crisis. Why did the American bank, JP Morgan, which is thought to have invented these securitised debt wheezes, go cool on them several years before disaster struck? And we really must ask the competition authorities to take a much tougher line when looking at wild takeover proposals, such as those made for ABN Amro by Barclays, which had the good fortune to be outbid by the Royal Bank of Scotland. Pre-big bang, the cleverest of our young people tended to go into science, technology and academia, leaving the less bright to run the banks. However, when the brightest were lured into finance, their fertile brains produced all these lethal new products. Perhaps if the old guard were still in charge, these inventions would never have seen the light of day and, if they had, the old-fashioned boards would have viewed them with the great suspicion that they deserved.

Lord Leach of Fairford: My Lords, I should declare two possible interests. I am a director of a bank that has not taken assistance from any Government and a director of an untroubled insurance business.
	Despite all its disasters, the financial services industry is still a formidable asset to this country. Your Lordships' Economic Affairs Committee's measured recommendations on reform of the tripartite system have led to a very constructive dialogue to which I shall not contribute tonight—there have been too many excellent contributions already for me to add to them. The committee's recommendations were all about putting our own house in order. They presupposed national responsibility and multilateral co-ordination. The EU's proposals to transfer regulatory powers from London to Brussels are on a fundamentally different tack. The City is at the centre of a worldwide, not a European, network. It cannot be wise to agree to proposals whose horizon is regional and whose regulatory purpose is not co-ordination but transfer.
	We saw from the financial services action plan and more recently the alternative investment fund managers directive the result of conceding financial authority to the EU. What emerges is a set of measures drafted by people with no knowledge of wholesale financial markets and not always, as my noble friend Lord Willoughby sadly reminded us, with friendly intentions towards the City. Some of these measures stem from the inexperience of countries that do not have a sophisticated financial industry; others reflect a hope that financial activity will fragment, allowing a shift from London to Frankfurt and Paris; others come from visceral antipathy to organisations such as private equity and hedge funds, although, as de Larosière himself said, they had nothing to do with the crisis.
	For those who think that way, the troubles of the City represent an opportunity, but our own dismay at the City should not lead us to accept the EU's analysis or its solutions. There is no reason to think that supranational regulation will be in any way superior to the national regulation that, as some noble Lords have remarked, has stood Spain, and has also stood Canada and Australia, in such good stead.
	The FSA has said that the Commission goes too far in proposing that EU bodies should be able to overrule national supervisors. Last year the Treasury, too, said that the most appropriate form of supervision was at member state level—an opinion implicitly shared by your Lordships' Economic Affairs Committee in its emphasis on domestic reform and its suggestion of national regulatory capital for branches of multinational banks.
	Given those unambiguous statements from the supervisors of the unquestioned powerhouse of financial expertise in the European time zone, one has to ask why these EU proposals were not strangled at birth. Why are we always left trying to mitigate ill-thought-out proposals when it is too late to prevent them? If the common agricultural policy or the car industry were threatened in this way, France or Germany would not have let the proposals see the light of day. Can the Minister say just when these plans—the AIFM directive and the broader EU plans—first came to the Government's attention and what steps they took at the very outset? Did the Government press the case for subsidiarity? Did they insist on widespread previous industry consultation?
	The Commission's proposals envisage three new authorities with combined budgets of €68 million. It will be mandated to take action in emergency cases. Does the Minister believe that the Commission will be more competent than a reformed FSA to take a technical decision, such as banning short selling? If the new EU authorities get things wrong—which, as the noble Lord, Lord Skidelsky, said, is a racing certainty—who will hold them to account, who will change them?
	As the noble Lord, Lord Myners, has said, if the financial crisis has shown us one thing it is that Finance Ministers and regulators must be held accountable. Some important decisions on enforcement and implementation in the new regime will be taken by simple majority, on the basis of one state, one vote. That means that the UK, which has far more to lose or gain than any other member state, will have the same voting power as Latvia or Malta.
	If you look at the history of European finance with a sense of perspective, you see the formation, at first embryonic, but now more and more clear, of a comprehensive US-style regulatory system, with a budding SEC in the shape of the European Securities Markets Authority. As President Sarkozy has said, that is just the point of departure.
	In two or three years' time, it is likely that the City will again be seen as a success. That is not certain, but it is likely. The FSA, within whatever overarching structure it eventually sits, will recover from its failures and be seen as an effective regulator again. The Bank of England's initial response to the crisis has been much criticised, and it suffered from the misguided tripartite system, but its international reputation remains as high as ever. The Takeover Panel is a widely admired model. That deep pool of operating and supervisory experience and legal and professional support was responsible for the migration of international finance from Wall Street to London 40 years ago. We should not even contemplate handing its regulation over to the lowest common denominator of 26 legislatures and three or four unaccountable EU bodies with vague powers that can only grow.
	Finally, it is an old chestnut, but we must ask whether the proposals have a sound legal basis. The grant of binding powers requires a treaty amendment. In evidence to your Lordships' EU Committee, a witness from the ECB gave the opinion that the creation of the new agencies crossed the line of what is permissible under internal market legislation. The Commission argues, as it always does, that the new authorities can be created under the notoriously permissive Article 95, and surely the least that we can do is to challenge the legality of this unwelcome new regime in the highest court of law. Will the Minister assure us that Her Majesty's Government will follow that course?

Lord Newby: My Lords, it is a pleasure to be able to debate these two reports this evening, although my enthusiasm is slightly tempered—as the noble Lord, Lord Forsyth, commented—by the lateness of the hour. I retain some enthusiasm, not least because the two reports are grappling with a common problem: how to develop the existing regulatory framework for financial services in a manner that minimises the possibility of the kind of crisis through which we have just lived occurring again while, at the same time, neither stifling innovation nor putting the UK or the EU at a competitive disadvantage.
	In doing so, both reports necessarily grapple with the roles which a variety of regulatory and supervisory bodies should play. The reports have been produced against the backdrop of a continuing sense of popular unease that the banks have somehow got away with it. That unease will have been strengthened by the size of Barclays' profits that have been announced today. There is also a growing realisation that while the large international banks can and do operate very flexibly on a global scale, shamelessly playing one Government and regulatory system off against another, politicians still find it extremely difficult to come up with an effective international decision-making structure. The example over this weekend of the Prime Minister's ill-fated attempt to fly the kite of a Tobin tax demonstrates this. It is inconceivable within a Cabinet, for example, that a Minister would float an idea that his most senior Cabinet colleagues would immediately disown, yet in the absence of a proper G20 or international decision-making framework, it is quite difficult to see how else you make proposals. One hopes that when the noble Baroness, Lady Vadera, gets stuck into the organisation of the G20, that might change, but I suspect it will be a long job.
	On the substance of the Tobin tax, in principle, it has much to recommend it. There are a number of outstanding difficulties, of which getting international agreement is only part. Bearing in mind that one of the original intentions of the Tobin tax was to introduce some grit into the system to reduce the amount of speculation, as he saw it, the projections of what the tax would raise, based, as they are, on assumptions that trading volumes would stay the same, are misplaced. While it might be a useful contributor to a variety of causes, and there are lots jostling to spend any money raised, the quantum raised might well be less than the headline figures have so far suggested.
	The extremely clear and thoughtful report by the committee chaired by the noble Baroness, Lady Cohen, demonstrates time and again how difficult it is, for a variety of legal, political and administrative reasons, to make progress at a European level. There are a number of points in the report, and a number of noble Lords have referred to them. There is an extent to which what might seem to be sensible progress—to me, at any rate—is blocked by the need for a treaty change, and a treaty change is virtually impossible. One of the main challenges for the EU is how it makes progress in areas where there may be a consensus for change, yet the treaty makes that very difficult. I completely disagree with the concept that you can deal with these problems largely at national level. I have some sympathy with the noble Lord, Lord Trimble, about it being preferable to deal with it all at a global level, but we know that if you try to do that, on many issues, you will be waiting a very long time, despite the progress that has been made in recent months in terms of making the G20 a more effective body.
	Turning to the specific proposals in the report, I agree with the need for dynamic provisioning and a major redrawing of the basis of the Basel rules. This is obviously something that, as the noble Lord, Lord Skidelsky, said, has its limitations, but to have countercyclical rules must surely make no sense whatever. It obviously makes sense to have a common deposit guarantee level across the EU. There are some wrinkles to sort out in that area in terms of whether one is talking about a guarantee that applies to a brand or a bank, but the principle of having a common level makes great sense, as we saw when the Icelandic and other banks got into such difficulties. It would be extremely difficult to see how one could establish an EU body with micro-prudential supervisory roles as long as national Governments bail out financial institutions, and no one is suggesting that. But there is a real challenge if we believe—I do not know whether some noble Lords do believe—that we should have within Europe some of the world's largest banks. If we do, the problem that we are faced with is that there is no single nation state in Europe that is big enough to bail them out if they get into serious problems. The view of the chief executives of some of our largest banks is that the choice is between having some of the world's largest banks in Europe with some sort of European guarantee and not having them at all. We will come back to that debate.
	The most interesting contribution to our debate on the macro-prudential systemic risks and the ESRB was that of the noble Lord, Lord Renton of Mount Harry. A simplistic response, which I cannot help giving, to the question of how you reduce the paranoia about the potential growing strength of the ECB is that if we were part of the euro, perhaps we would be somewhat less concerned about it. I realise, however, that not everyone will become less paranoid at that suggestion.
	On state aid rules, the noble Lord, Lord Willoughby de Broke, pointed out that Stephen Hester did not like his bank being split up. Well, he wouldn't, would he? Has a single banker so far volunteered their bank to be reduced in size and complexity and regulated more systematically? Of course not; bankers are the last people to look to to support that kind of activity. Our criticism of the changes that have been made is not that they go too far or that profitable bits are being hived off—how, incidentally, could you hive off non-profitable bits; who would buy them?—but simply that they do not deal with the question, which a number of noble Lords have raised, of whether one goes down the route of having a Glass-Steagall type of separation.
	As for the alternative investment fund directive, yes, the first draft was poor but it was not, as the noble Lord, Lord Trimble, said, pulled out a bottom drawer, having sat there for a long time; it was the product of a single politician who had an ideological view and was temporarily in a position to push that view forward. I seek to reassure the noble Lord, Lord Leach of Fairford, only that the committee at the European Parliament that is dealing with this is chaired by my colleague Sharon Bowles, who I am sure will ensure that we get a sensible outcome. Interestingly, I do not think that a single noble Lord has pointed out in our debate on Europe that the European Parliament plays a major role in decisions on all this financial stuff. This is not just a question of what happens in the Council. The European Parliament is very open and transparent and, as we are seeing with regard to this directive, is capable of forcing through change to what many people thought was a poor Commission first draft.
	The biggest question with which the Economic Affairs Committee report deals is who is responsible for the stability of the financial system. There is now agreement that the Bank of England should have a decisive role in macro-prudential supervision. At the moment, macro-prudential supervision is in a muddle. Three committees—one of the Bank, one of the FSA, and one of the Treasury—are charged with financial stability, which is clearly nonsensical. I disagree with some of the proposals on the table at the moment in that I do not believe that micro-prudential regulation should follow macro-prudential regulation to the Bank. I do not believe that the Bank is temperamentally cut out for it. It would cause a whole new range of boundary issues, and spending two years changing the nameplates on the doors and rearranging structures at this point makes absolutely no sense.
	I strongly agree with everything that the noble Lord, Lord Haskins, said about corporate governance, with one caveat; if you have a very strong and domineering chief executive, as the RBS did, it is quite difficult as a non-executive constantly to challenge that person effectively. I declare an interest as a former non-executive of a small privately owned company that had a dynamic and charismatic chairman. I challenged particular things that he was doing with which I disagreed, but after a while that became a mere irritant to him and was not effective. That may have been a lack of eloquence on my part, but I do not think it was entirely that. I agree with the noble Lord, Lord Haskins, that the role of the institutional shareholders should be more effectively exercised. They are the people who really get chief executives and chairmen worried if they think that they are being effectively challenged. They should play a larger role in the future.
	I particularly enjoyed the speech made by the noble Lord, Lord Skidelsky. I have just finished reading The Black Swan: The Impact of the Highly Improbable, which deals with these issues in a slightly different way. His essential point that you cannot simply predict the future by looking in the rear-view mirror is extremely important and, as bankers now tweak their models rather than change the concepts on which they base their decisions, it has yet to be fully appreciated in the banking sector.
	The hour is late and, although there are many other issues which one could happily spend a long time debating, I will finish. It is clear that in the months ahead we will grapple with all these issues time and again. At this point, we are extremely fortunate to have the two reports before us to help inform our thinking.

Lord Trimble: As the noble Lord made reference to my comments on the origins of the AIFM, it may be that the rumour I heard was incorrect. I heard that the origin of the concept was Oskar Lafontaine many years ago. But if the noble Lord is correct that some other ideologue produced it more recently, that underlines the failure of the Commission to keep a grip of what it was doing.

Lord Newby: My Lords, what matters is the outcome, and my view is that the outcome will be sensible.

Baroness Noakes: My Lords, I join other noble Lords in congratulating the Economic Affairs Committee and the EU Committee on their reports. I pay tribute to all members of the committees, particularly those who have come to take part in this debate. I echo the comments made by my noble friend Lord Forsyth on the timing of this debate. It is a pity that it has taken until the dying hours of this Session for the reports to be given debating time. They were timely and relevant when they were published in the early summer. Subsequent developments mean that they have continuing relevance, which is why today's debate has some real point, but they should have been debated earlier.
	The majority of my remarks will be focused around some aspects of the EU Committee's report. That does not imply that I regard the Economic Affairs Committee's report as of less importance—far from it—but the world has moved on further as far as domestic supervision and regulation are concerned, and there is much still to play for in Europe.
	We agree with the analysis in the Economic Affairs Committee's report that, in addition to the global financial imbalances to which several noble Lords have referred, there was a failure of regulation and supervision, a failure of the tripartite authorities, a lack of attention to macro-prudential supervision, and the dominance of conduct-of-business supervision to the detriment of micro-prudential supervision. In July, the Government's White Paper, Reforming Financial Markets, refused to acknowledge the fact that the tripartite arrangements, which were designed by the Prime Minister, were a part of the problem. Instead, they proposed yet another committee, the Council for Financial Stability, to paper over the cracks.
	As my noble friend Lord MacGregor pointed out, this summer, my party issued its own policy proposals in a White Paper. Our solution is not for yet another committee. We have set out a more decisive approach based on transferring prudential supervision from the FSA to the Bank of England so that macro- and micro-prudential supervision can be properly united. I hear the reservations of the noble Lord, Lord Newby, but it is something we believe is worth the effort to achieve. Furthermore, we will separate conduct-of-business regulation into a consumer protection authority, thus implementing the twin-peaks approach that the Economic Affairs Committee urged the Government to examine. I will say no more about domestic supervision and regulation at this stage, save that we will work constructively on those parts of any financial services Bill in the next Session that deal with real issues, but we will not ease the passage of legislation which merely rearranges the deck-chairs.
	I turn to the European dimension because that worries us greatly and because the actions or otherwise of the Government over the next few months are very important to the UK. In my first observation I may well display my ignorance of the workings of the EU Committee and its sub-committees, and I stand ready to be corrected. In the introductory pages of reports from the EU Committee, there is the following statement:
	"The European Union Committee ... considers EU documents and other matters relating to the EU in advance of decisions being taken on them in Brussels. It does this in order to influence the Government's position in negotiations, and to hold them to account for their actions at EU level".
	That seems an entirely sensible approach but the report before us today, which I think is similar to other EU Committee reports, directs several of its conclusions to the Commission rather than the Government. Our role in Parliament is to hold the UK Government to account but, with many of the recommendations being directed other than to the Government, they themselves have had to reply formally to only four of them. I would have preferred all recommendations to be framed in such a way that the Government have to do things, even if only in terms of influencing the Commission. At the end of the day, a failure to achieve a good outcome for the UK must be laid squarely at the door of the Government, and it is they who we must hold accountable for it.
	This links to an issue that is not dealt with directly in the EU Committee's report, namely the effectiveness of the Government in arguing the UK's case in Europe. A constant complaint from the financial services industry over recent years is that the Government have been too little engaged in the detailed processes of EU policy formulation. I know that the Minister has of late been engaged in the alternative investment funds directive, but I am less clear, for example, about ministerial involvement in the current reshaping of the architecture of financial regulation and supervision. As I understand it, a Minister is not leading those negotiations, which are being left to UKREP—that is, to Brussels-based civil servants. Can the Minister enlighten the House on the level of involvement of the Government in these important negotiations? My own party's proposals include a significant increase in ministerial commitment to Europe, including a Treasury Minister with specific responsibility for financial issues. That Minister would not be tied down by other significant responsibilities and will devote as much time in Brussels, and indeed with other member states, as is necessary to achieve the right outcome for the UK.
	A number of noble Lords have referred to the alternative investment funds directive, which has not had a good press. The better regulation principles, as has been referred to, have largely been thrown out of the window. The draft seems to show a misunderstanding of the range of companies that will be affected and it is not based on any empirical evidence about the causes of the financial crisis, as the EU Committee pointed out. The directive, if implemented, would have a particular impact on the UK because of the nature of the financial services companies operating here.
	The Government's rather weak response to the committee merely talked about working with the affected firms with the aim of a full understanding of the impact of the draft directive and to draft alternative proposals. My noble friend Lord Trimble referred to the fact that there have been more recent changes in relation to the draft, and I hope that the Minister will update the House on the latest state of play. Can he assure the House today that the Government will achieve a result that eliminates the harmful parts of the draft directive in terms of protectionism, in terms of cost to the industry, and in terms of the restriction of investment choice for EU investors?
	The de Larosière proposals to change the architecture of financial regulation are even more worrying. The EU Committee was right to flag this as an area on which the Government need to do more work. There have been movements since the committee's report, but not for the better. The Minister described the proposals as having a "chilling consequence" for the financial services industry in the UK when he gave evidence to the Treasury Select Committee in another place last week. He said that the Commission had gone further than the European Council had contemplated. That, of course, is what the Commission does whenever it gets half a chance.
	The key issue here is the new supervisory authorities, which will be created out of the existing level 3 committees, and their potential impact on the UK's financial services sector, which, as other noble Lords have pointed out, is much larger than those in other parts of the EU. Other member states have less at stake and can also, unfortunately, see an opportunity to cut the UK down to size. This is particularly the case for the proposed Securities and Markets Authority, where the UK has an overwhelmingly large share of the securities market and where industry players regard the UK as at particular risk from this aspect of the new proposals.
	We have no problem with the new authorities acting as the focal point for the development of micro-prudential standards within the EU, provided that they remember that the global dimension is even more important than EU standardisation. My noble friends Lord Trimble and Lord Leach reminded us of this. However, there are problems with the ability of the new authorities to issue binding technical standards. As currently drafted, the powers for the Commission to alter those standards on a unilateral basis, or to have the final say in disputes between national regulators, are not acceptable.
	We have major problems with the proposed powers in relation to individual institutions in the so-called "emergency situations". We support the Government's line that the authorities should not act if that impinges on the UK's fiscal responsibilities, but the current draft does not achieve that. An ex-post appeal to the Council, which is then determined by qualified majority voting, is several steps too far. Will the Government set out clearly where their red lines are? My noble friend Lord Trimble has already pressed the Minister on this point.
	The EU Committee also pressed the Government to clarify their thinking on the proposed European Systemic Risk Board. We have no problem at all with an EU body which can survey financial stability and contribute to the macro-prudential work of national regulators and, indeed, at a global level. There is no reason to believe that such a body would have prevented the financial crisis but, equally, no harm can come from co-ordinating views on emerging financial stability issues across Europe.
	However, we have concerns if that body expects to do more. As a non-eurozone country—I hope for many years to come, if not indefinitely, I say to the noble Lord, Lord Newby—the ECB seems an odd home for the European Systemic Risk Board. I probably part company with my noble friend Lord Renton on this. This is exacerbated by rumours that the UK will not automatically be represented on the ESRB steering committee, which is where all the important things will be discussed, and probably decided, given, as has already been pointed out, that the ESRB will total an unwieldy 61 members. Do the Government have any red lines on the ESRB, and where do they draw them?
	The two reports have given the House a valuable opportunity to debate important issues. I look forward to the Minister's response because it will give the Government an opportunity to explain in detail how they will protect the UK's interests over the next few months. I hope the Minister will lay out clearly what the Government intend to achieve and, just as importantly, the things that they will not tolerate in any final proposals.

Lord Myners: My Lords, I thank the noble Baroness, Lady Cohen of Pimlico, and the noble Lord, Lord MacGregor of Pulham Market, for allowing us to have such a timely and excellent debate. I also thank all noble Lords for their informed and, at times, challenging interventions. I congratulate the European Union and Economic Affairs Committees on their insightful and extremely well argued reports.
	As your Lordships are aware, the Government strongly support moves to improve the quality and consistency of supervision, ensure more effective rule-making and enforcement and better identify risks in the financial system. That is why we support the proposals to establish the three new ESAs and to give them strong rule-making roles, a leading role in enforcing rules, responsibility for peer review and the ability to settle disagreements between supervisors. Such moves will improve the quality and consistency of supervision and are supported by the City and cross-border institutions represented in London.
	However, as the Government have made clear a number of times, we need to ensure that day-to-day supervision and crisis management arrangements remain national, as it is only national Governments who can provide the necessary fiscal support to firms. As the noble Lord, Lord Trimble, said, they are a necessity for that function. As my noble friend Lord Desai observed, there is a need for resource, and I have yet to see a credible burden-sharing agreement that could allow that responsibility to rest with the EU as opposed to national Governments. I therefore reassure the noble Baroness, Lady Noakes, immediately that a red line exists as far as we are concerned. That is why the Heads of Government agreed at the June meeting of the European Council that the new framework should not impinge on member states' fiscal responsibilities and, therefore, that day-to-day supervision should and must remain national. As a result, it is clear that there can be no direct crisis management powers over firms or other direct powers that undermine such national supervision. That is another red line that I would draw to the noble Baroness's attention in responding to her concluding remarks.
	The Government also agreed in June that the new European supervisory authorities could directly supervise credit rating agencies—on which I shall say a little more in a moment—given that their failure would not result in a fiscal obligation for national Governments. So there is a consistency of approach on this point.
	This is an agreement on fiscal responsibility with which we must and will stick. In some areas, the Commission's proposals do not respect the Council's agreement as articulated in June and repeated by ECOFIN in October, in particular where it proposes European powers over firms and European crisis management powers. Here, we will need to bring the proposals back into line.
	There are also, as the noble Lord, Lord Leach of Fairford, said, legal issues in the proposals of which the Government are well aware. I shall not go into the detail, but let me be clear: regardless of the technicalities, the Government's overriding objective is that the framework must be able to withstand legal challenge. We cannot have legal uncertainty and challenges before the courts. That would undermine confidence and financial stability. We are therefore working closely with other member states of like mind and the Council's legal service to ensure that the new bodies are on a sound legal footing and, in particular, comply with the Meroni principles. These areas are problematic, but I believe that they can be resolved.
	Let us not forget, however, that while there are outstanding issues and questions, this is a positive agenda for reform which the Government strongly support. We are putting in place a new framework that will improve the quality of supervision and regulation. Such a framework will better protect consumers, help prevent financial crisis and improve efficiency for firms.
	Finally, we need to ensure that this is a better and more effective regulation and therefore is based on strong evidence, thorough consultation and robust impact assessments, as my noble friend Lord Haskins reminded us.
	I know that many noble Lords have questions about the fiscal safeguard clause in the proposals. I have said before that this is a mechanism that in practice should never be used. The ESA is required to ensure that it does not impinge on member state fiscal responsibilities. However, alongside this is a process set out in legislation. We need to ensure that this process is not open to abuse but provides the right protections. I am not convinced that the balance is currently right; we are working with EU member states, many of whom share our concerns to improve the safeguards clause. This is a proposal that, in the main, must be agreed with a QMV in council, meaning that a majority of countries with a two-thirds majority of votes and roughly two-thirds majority of population must approve the measures. Clearly that means that we cannot stop a proposal on that basis alone. However, I am confident that I we can ensure that we achieve a solution that meets our concerns. I remind noble Lords that there are elements of the package on which unanimity is required.
	I understand the concerns expressed by the noble Baroness, Lady Cohen, about the speed of reforms at EU level and better regulation principles. It is, of course, important to respond swiftly to the crisis. However, I agree that the desire to act swiftly should not be at the expense of high-quality regulation. It is more important than ever to ensure that our response is evidence-based and will achieve the desired ends. Clearly there was an absence of evidence base in the alternative investment management directive, to which I shall return in a moment. Having a high-quality evidence base will also maximise the influence of the EU on the international stage with our international partners, and better enable the EU to attain international regulatory convergence.
	I turn to the Economic Affairs Committee report on Banking Supervision and Regulation.As noble Lords will be aware, in July this year the Government published the Reforming financial markets White Paper. This document presented the Government's strategy for the reform of regulation and supervision of financial markets, and particularly the banking sector. The document consults on a wide range of questions relating to this reform agenda, including proposals for primary legislation.
	While financial services organisations, their managers and owners must take responsibility for their part in the economic crisis, it is clear that the Government need to take action, too. We announced that we would legislate to establish a new Council for Financial Stability to analyse emerging risks to the financial stability of the UK's economy and co-ordinate appropriate responses. We will enhance the FSA's regulatory powers to support its new, strengthened and more systemic approach to regulation and supervision. We will strengthen the objectives of the FSA, including providing the FSA with an explicit financial stability objective; making clear that the FSA should consider both the wider economic and fiscal costs of instability and the potential impact on economic growth of stability-enhancing measures; and creating an explicit duty for the FSA to have regard to the need to work internationally.
	Sir David Walker is due to report later this month on the governance landscape in the banking sector. The noble Lords, Lord MacGregor of Pulham Market and Lord Haskins, among others, spoke on that issue and about whether banks were conceivably too big to manage. The noble Lord, Lord Willoughby de Broke, also mentioned that. That is an issue not only of concern for the regulators but for the owners and boards of directors. Frankly, some of those directors did not understand what the companies on whose boards they sat were doing. The shareholders certainly did not understand—or, if they did, they did not engage properly. There is a need for everybody to raise the standard of their game here, and I do not exclude the Government or regulatory structures from that imperative.
	Sir David Walker will make recommendations for far-reaching changes to strengthen board challenge and shareholder oversight, and improve the quality and independence of risk management. Last week, the Chancellor announced the intention to legislate to enable the Government to implement Sir David's recommendations. In parallel, the FRC is reviewing the combined code and considering which of Walker's preliminary recommendations have application beyond the banking sector. I think that many of his recommendations will be judged to be non-sector specific and to have a broader applicability than financial institutions alone. The FSA is implementing remuneration principles, designed to ensure that remuneration practices no longer incentivise excessive risk-taking but run in parallel with, and are supportive of, effective risk management.
	The noble Baroness, Lady Noakes, asked about the alternative investment fund managers directive. We have worked on that assiduously. It has taken a considerable amount of ministerial and official time. The original draft was exiguous and poor in both evidence and understanding of the industry, but I am much encouraged by the progress that has been made. We are likely to end up with a directive that is broadly satisfactory from the point of view of investors in the United Kingdom, those who operate their businesses from the UK and, importantly, as far as financial stability is concerned. The noble Lord, Lord Newby, mentioned the work of Miss Sharon Bowles in the European Parliament. I echo that: I think Miss Bowles is doing an excellent job.
	The noble Baroness, Lady Cohen, asked a number of questions. I should immediately say to noble Lords that at this late hour I will not be able to answer all the questions that were asked without the noble Baroness's eyebrows disappearing into her forehead, but I will try to respect the amount of time that noble Lords have set aside for me to speak and cover as many questions as I can.
	My noble friend asked whether I agreed that there should be explicit countercyclical capital requirements. I answer that question burdened by the observations of the noble Lord, Lord Skidelsky. Certainly, there is a consensus around the G20, the FSB and the FSA—and indeed the Government in our Reforming Financial Markets White Paper—that capital structures now need to bear down on cycles rather than enhance them as has been the case in the past. My noble friend also asked about the return of the banks in which the taxpayer currently has a shareholding. I can only repeat that it is our wish to see these banks returned to private ownership as soon as possible, consistent with achieving value for the taxpayer, contributing to competition and enhancing financial stability. Many months ago, I said in answer to a question from the noble Lord, Lord Forsyth of Drumlean, that I believed taxpayers would earn a good return on the support that they have provided to the banking system and I remain as strongly of that view as I have ever been. As we all know, it is necessary to be patient at times.
	The noble Lord, Lord MacGregor of Pulham Market, noted many points of agreement with the Government on macroprudential issues and on liquidity. He also observed that bonuses were unpalatable to him in some respects and I will return to that subject later on. There is clearly a role for the Bank of England in terms of financial stability, but I respectfully do not agree for a number of reasons with the case made for the Bank taking back microprudential responsibilities. First, it is far from clear that the Bank would want to be responsible for the microsupervision of the Shepton Mallet building society. Secondly, there is a logical integrity to having responsibility for monetary decisions and responsibility for regulatory decisions resting in different entities because there are situations in which a decision could conflict with those two objectives. One might want to increase interest rates, for instance, because of a judgment about the economy, but at the same time one might be concerned about the stability of financial institutions and not want to increase interest rates.
	I also observe—correctly, I think—that the Bank is inclined to be an academic institution. It is modest in size but huge in terms of intellect. It is not well suited to managing an organisation employing nearly 4,000 people, as is the case for the FSA. I wonder whether the choice of governor might not be influenced in future if these two organisations were combined. You would need very different skill sets.
	We are very fortunate in having a governor of such excellence. However, he is a governor drawn from an intellectual, academic background and is not necessarily somebody whose career would have inclined him towards wanting to manage a huge organisation on the scale of the FSA. There are plausible arguments but I am not going to suggest that there is one superior model of regulation and supervision. We know, effectively, that all models fail to a greater or lesser extent. It does not make sense to disturb the current architecture.
	The noble Lord, Lord MacGregor, raised issues about the Financial Services Compensation Scheme. The FSA is currently consulting on that and no doubt it will look at whether a risk-based mechanism is suitable. I also agree with the noble Lord's observations about credit rating agencies. The noble Lord first—and other Members later—raised the issue of Glass-Steagall, which dates back, as the noble Lord, Lord Skidelsky, said, to 1933. I believe that the model that we are proposing achieves the goals of a Glass-Steagall outcome without the disruption, disturbance and practical difficulties. We place great emphasis on capital. The noble Lord, Lord Skidelsky is right to say that this requires judgment—and judgment, to some extent, from people whose judgment has, in the recent past, not proved to be absolutely perfect in forecasting. However, I come to life as an optimist, always believing the best of people and hoping that we learn from our experiences.
	A Glass-Steagall model is difficult to achieve. The distinction between retail and investment banking is far from clear. Even if it was feasible, it is not necessarily the case that one would separate the risk of contagion from the two separate constituencies. Those who speak in favour of Glass-Steagall imply that all the risk lies in investment banking, but global experience suggests that that is not the case. Some quite narrow institutions failed.
	Instead, we see the combination of increased capital requirements and the living will. I emphasise here that the significantly increased capital requirements are for the most risky activities—those which were transferred, perhaps because of accounting conventions, to trading books. The living wills are the recovery and resolution plans which will ensure that, if part of a banking institution gets into extreme difficulty, it can be separated from the rest of the bank without doing damage to the rest of the institution or the system. I have no doubt that there will be very substantial resistance from the banking industry to the concept of the living will, but I am equally clear about the Government's determination, as will be reflected in forthcoming legislation, to ensure that we introduce living wills in this country, and to advance the case for living wills to the G20.
	The noble Lord, Lord Renton of Mount Harry, has served the committee with distinction; I am sad to hear that he will be leaving it. He asked about the European Systemic Risk Board, and suggested that it could be an important step forward. I also believe that it could be. It certainly has the components of the right economics and philosophy to give rise, I hope, to greater confidence in financial stability in the future. I think it will act, as I explained to the committee this afternoon, as a good warning system for inclement weather coming towards us.
	The noble Lord, Lord Renton, raised the issue of the Tobin tax, as did the noble Lord, Lord Newby. The Prime Minister laid down at the G20 Finance Ministers' meeting in St Andrews a very clear marker that we need to search out institutionalised solutions to the problems that we have experienced, including the fact that the build-up of leverage through wholesale funding meant that, ultimately, that risk came back to the taxpayer. There is an implicit guarantee in the banking system for which no premium is being paid. We managed to get quite a nice premium out of Lloyds for the implicit guarantee that it had under the APS. The Prime Minister was saying that we need debate about this. It could take the form of a liability insurance premium, a Tobin tax or a couple of other ideas that he floated, which I cannot immediately remember. They were all incredibly good; I remember thinking that the minute I heard them. He is going to make sure that we develop an international consensus through the G20.
	The noble Lord, Lord Skidelsky, talked about the sources of the problems. To me this has been a bit like a Russian doll in that whenever I got to where I thought the problem lay—it was rather convenient for a while for us to think that it all stopped with sub-prime in America—there were further Russian dolls in there. This core issue of imbalances across the world is undoubtedly one that the IMF and the G20 will need to address, or, if they do not, they need to recognise that they are themselves a critical potential contributor to financial instability in the future, and therefore an early chapter for the FSB and the ESRB to address. I noted with great interest the noble Lord's comments on the great deception of spurious accuracy that came from statistical risk modelling. I defer to my noble friend Lord Desai, whose reputation as a model is so well known to all in the House. I was fascinated by the 1913 quotation from JM Keynes. I shall certainly look to use that in the future.
	The noble Lord, Lord Trimble, spoke about the possibility of an impingement on national fiscal resource. I hope that I have answered that. He also referred to the conciliatory tone of some of our language on these issues. I hope that will be interpreted not as a wavering in our determination but rather as an approach to getting consensus in Europe; however, I have been very clear that these are red-line issues. The meetings of the systemic risk board will involve 61 people but there will be only 27 voting members. That still seems to me quite a large number, although less than the membership of the shadow Cabinet. Importantly, the decisions on the day-to-day issues that we have discussed this afternoon will lie with committees, expert groups and the secretariat.
	The noble Lord, Lord Trimble, raised questions about RBS and state aid. It was very clear to Lloyds, Northern Rock and RBS that state aid would require remedies and that there would be consequences of failure. We cannot have a system in which institutions that fail do not bear any consequences at all. The companies and their shareholders must bear the costs, as indeed must the subordinated debt holders, as we have agreed with the EU. We were consulted and we did negotiate with Neelie Kroes on this. I and others spent many hours talking with the Commissioner and her staff on these issues. It is absolutely critical in my view that the Royal Bank of Scotland reduces its complexity and gets back to a point where it is more manageable and, in so doing, if we can get an outcome which encourages new entrants—which we believe this outcome could do—that is another plus. The noble Lord, Lord Willoughby de Broke, reminded us that Mr Hester had described the experience as bruising. The noble Lord, Lord Newby, reminded us that it was pretty obvious why he would do so. I have been negotiating with Mr Hester for 12 months and he is a bruiser himself. I have no doubt that Mr Hester is perfectly capable of standing up for the interests of the shareholders of Royal Bank of Scotland. If he does not like this outcome, he can go to a phase 2 review. He has clearly chosen not to do so, so his conclusion must be that this is in the best interests of the Royal Bank of Scotland.
	The noble Lord, Lord Willoughby de Broke, quoted Mr Haldane. Of course, Mr Haldane would no doubt have given this space and gone on to explain that hedge funds do not take deposits and do not operate funds transfer systems, and therefore clearly can be run to very different standards from banks. Deposit insurance does not cover all deposits.
	I apologise to those whose comments I have not covered, to whom I shall write. I shall try to wind up at this point.
	The noble Lord, Lord Willoughby, asked about the EU's ability to supervise our institutions. This is so important because many noble Lords raised this point. It is not proposed to move the supervision of financial institutions to the EU level. However, it includes issues such as emergency powers and direct powers over firms that could undermine national supervision and have a fiscal impact. We need to correct this. These proposals will be decided using QMV. This means that we cannot block them alone. However, I say to the noble Lord, Lord Willoughby de Broke, that many member states share our concerns on these matters and I am confident that we can work with the grain of good argument to convince others that the position taken by the Council in June was correct and should hold.
	I disagree with my noble friend Lord Desai on Bear Stearns; I agree with my noble friend—or rather, the noble Lord, Lord Forsyth; he was so kind to me earlier that I almost felt that I had to call him my noble friend. My noble friend Lord Desai emphasised the importance of judgment. I am grateful to the noble Lord, Lord Forsyth, for his kind words; I shall pass over his less kind observations about one or two other people. However, I agree with him that there will need to be economic adjustment involving reduction in debt levels—at the individual level and the government level—and that will take time; but it needs to take place at the right time. However, I do not disagree with the noble Lord that that is the direction in which we need to travel.
	The noble Baroness, Lady Hooper, spoke about innovation. Keynes said that all financial innovation was about leverage, and the capability of managing innovation will be a big concern. It is clear that the chairman and board of directors of the Royal Bank of Scotland had very little idea of what was going on in major parts of that bank. It was absolutely shocking, but it is the shareholders who should be holding them to account. I continue to urge the shareholders, as the noble Lord, Lord Haskins, said: step up to your responsibilities; you are there as fiduciary owners. These institutions require active and engaged owners.
	I think that I have answered most questions of noble Lords. The Government feel that they are being held to account by these committees. We are fortunate to be informed in our deliberations by such a wise and experienced group in the work of these committees. My thinking on some of these issues has moved on—of which the committee somewhat rudely reminded me. However, I am not ashamed of that; I benefit from the wise advice we receive.
	My final point is that there is senior ministerial involvement in negotiation with the EU on the architecture of the new supervisory boards. The Chancellor is very involved in this issue at ECOFIN meetings, as is the Prime Minster at European Council meetings. The Chancellor and I regularly discuss this; and other Treasury Ministers and I work with our opposite numbers in Europe. The proposals are being negotiated at attaché—official working group—level but they will come back to ministerial-negotiation level before final agreement on the new architecture. Ultimately, they will need to be agreed by the European Council as being consistent with the framework set out in June.
	I apologise for taking a long time, but I can only pay tribute to the quality of input from the House. I agree with the noble Lord, Lord Forsyth, that it is a shame that this debate is being held late in the evening. This has been an extraordinarily good debate, comprising outstandingly well informed and challenging observations. I thank noble Lords for their part in it.

Baroness Cohen of Pimlico: It has been a great pleasure and very illuminating to share a debate with another committee engaged in another version of the subject and attacking it from another angle. It has been a worthwhile innovation and I suggest that we do it again. Indeed, we may have to do it again in order to support my noble friend the Minister in his efforts to ensure beyond peradventure that the new European supervisory authorities cannot make regulations that impinge on the UK's financial sovereignty. I thank all who have taken part in the debate and the Minister for his long efforts with both committees and in summing up this difficult debate.
	Motion agreed.

Banking: EAC Report

Copy of the Report Vol I
	Copy fo the Report Vol II

Motion to Take Note

Moved By Lord MacGregor of Pulham Market
	That this House takes note of the Report of the Economic Affairs Committee on Banking Supervision and Regulation (2nd Report, HL Paper 101).

Lord MacGregor of Pulham Market: Following the noble Lord, Lord Newby, the hour is even later, so I simply beg to move.
	Motion agreed.

Coroners and Justice Bill
	 — 
	Returned from the Commons

The Bill was returned from the Commons on Monday 9 November with reasons and an amendment. The Commons reasons and amendment were printed in accordance with Standing Order 51(2). (HL Bill 80)
	House adjourned at 10.30 pm.